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ANNUAL INTEGRATED We move people REPORT 2016 and freight Rose Pettigrew, Terminal Manager Operations and Emma–Jane Wells, Rail Operator

2 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Contents

Overview of our business Management review Business review

At a glance 4 Our first annual integrated Performance of our report 8 business units 16 Who we are and what we do 6 Integrated reporting concept: Value creation process 9 Chairman’s message to stakeholders 10 Our progress 2010–2016 12 Chief Executive’s report 14

Capitals review Governance review Statutory review

How KiwiRail creates value 18 The KiwiRail Board 42 Financial statements 48 Helping to grow our exports 20 The KiwiRail Executive Team 44 Independent Auditor’s report 82 Financial 21 How we are governed 46 Key Performance Indicators 84 Increasing the value Vote Transport 86 of tourism 23 Employee remuneration 87 People 24 Directory 88 High Performance High Engagement 27 Assets 28 Inland ports and freight hubs 30 Know–how 31 eProtect: Innovative safety initiative helps save lives 33 Relationships 34 Working with communities to deliver results 36 Environmental 37 Delivering cost and energy savings 39 Outlook 41

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 3 Overview of our business: At a glance

Highlights from FY16 Awards Relationships • Chartered Institute of Logistics • 11% growth in import and export markets, and Transport “Most Innovative underpinned by strong relationships with ports Public Transport project” for and customers electrification and re–signalling of Financial the Auckland urban rail network * • $86 million underlying operating surplus • Railway Technical Society of • $105 million in tourism revenue, up 10% on last Australasia “Rail Project Award” year (with Siemens and Hilor) for • $27 million savings through productivity and electrification and re–signalling of efficiency initiatives the Auckland urban rail network People • 39% reduction in Lost Time Injury Frequency Rate • Deloitte Energy Excellence Awards and 33% reduction in Total Recordable Injury “Large Energy User Initiative of Frequency Rate the Year” for the Locomotive Fuel • 242 people participated in our Leadership Conservation project Programmes • Northern Explorer nominated Assets for the 2016 “Holiday & Tours • $254m invested in renewal and upgrade of Specialist Award” by the UK– network, property and rolling stock based Luxury Travel Guide Know–how • 29% reduction in mainline derailments, improving • TranzAlpine is ranked No 9 in The service reliability for customers Luxury Travel Expert’s Top 10 Greatest Train Journeys in the Environment • Reduced heavy vehicle impact of 1.1 million truck World trips, saving 77 million litres of fuel and 209,000 • The Coastal Pacific service is

tonnes of CO2 emissions ranked No 2 in Lonely Planet’s The • 3 million litres of diesel saved in FY16, following Best Train Journeys You’ve Never the introduction of a fuel conservation programme Heard Of

*Operating surplus before significant items is a non-GAAP measure used by management to assess the performance of the business and has been derived from KiwiRail’s group financial statements for the year ended 30 June 2016.

4 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Overview of our business: At a glance

At a glance

We move people We help commuters make more than 27 million low– carbon journeys each year

We carry more than one million tourist passengers each year

We enable passenger growth of more than 20% per year in Auckland

We move freight We move around 18 million tonnes of freight each year

We carry around 16% of New Zealand’s total freight task (tonnes–km)

We transport around 25% of New Zealand’s exports

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 5 Overview of our business: Who we are and what we do

Our Vision: Who we are Trusted Kiwi–owned logistics partner and what we do growing New Zealand

Long–term Manage 3,400 employees viability 18 thousand hectares of Economy–wide and land geographically diverse Investing in our jobs growth corridors Enable 27 million Provide on–going commuter trips Working with training to develop in Auckland and our customers leaders, improve safety Wellington to reduce supply and create culture chain costs 3 Scenic Journeys’ Skilled and safe experiences between workforce Auckland and Support Greymouth conservation One of the top rated Promote rail safety 3,087 signals train journeys in the world Custodians of rail 1,476 public level heritage for the crossings generations

3,500 km of track operated and maintained

6 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Overview of our business: Who we are and what we do

9158 9158

1,322 bridges Connect customers to ports around New Zealand and the global market place Reduce heavy vehicle impact by Transport 25% 3 ships more than 1 million of New Zealand’s truck trips per year exports Extension of SH1 across Cook Strait 60–70% less 4,855 wagons emissions than 800,000 passengers road

100 Tunnels 4,000 sailings per year Less congestion and safer roads

302 locomotives

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 7 Management review: Our first annual integrated report

Our first annual integrated report

Welcome to KiwiRail’s first Integrated KiwiRail has evolved over the past six We also discuss material issues that Report, which uses the internationally years with a far greater focus on our are likely to impact our ability to create recognised Integrated Reporting customers, our people and our strategic value in the short, medium and long framework to explain our performance role in the Government’s Business term. These issues are relevant to both as a business for the year to 30 June Growth Agenda. Taking an integrated the business and our stakeholders, and 2016. approach to the business helps are detailed throughout the report. drive real commercial value for our The report explains how KiwiRail uses While this is the first time KiwiRail stakeholders and customers. six forms of capital (financial, people, has used the Integrated Reporting assets, know–how, relationships and Our business strategy and value framework, we will look to refine our environmental) to create value for creation model is summarised on pages approach in subsequent years. More shareholders and customers. 18 and 19, and a short overview of information on the integrated reporting strategic challenges and opportunities framework can be found at We provide an overview of our activities on page 41. Measures of our progress http://integratedreporting.org for each capital input and demonstrate against key performance indicators and how each area contributes to our vision financial statements are provided from to be a “trusted Kiwi–owned logistics page 48 onwards. partner growing New Zealand”.

Customer relationships Financial performance

Employee relations

Commercial focus

Service performance Transport resilience

Operational efficiency Public safety Worker health & safety Energy and carbon

8 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Management review: Integrated reporting concept: Value creation process

Integrated reporting concept: Value creation process

FINANCIAL

PEOPLE RELIABLE

We move ASSETS people

Inputs Outcomes SUSTAINABLE

We move KNOW–HOW freight

RELATIONSHIPS VALUABLE

ENVIRONMENTAL

Statement of Responsibility We, the Board of KiwiRail, acknowledge our Audit New Zealand has provided a statement responsibility to ensure the integrity of this of assurance for the financial statements in this Integrated Report. In preparing and approving report, but we have not sought external assurance the content of the report, we are confident that of the contents of this Integrated Report. it aligns with the principles of the International Integrated Reporting Framework.

John Spencer Dame Paula Rebstock Chairman Deputy Chair

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 9 Management review: Chairman’s message to stakeholders

Chairman’s message to stakeholders

My term as Chairman of the KiwiRail board Our commercial focus has benefitted from finishes at the end of October and this a cultural shift within the organisation. Customers are year’s financial results are a timely marker KiwiRail has a clear eye on the future while in what has been a significant, multi– it honours its past. A commitment to strong at the core of our year transformation programme for the engagement with our people and unions “ organisation over the past six years. and a strengthening of leadership across all transformation and parts of the business will continue to grow Despite numerous challenges and setbacks, I would especially the value of rail in New Zealand. the achievements have been significant in like to thank a relatively short period and many of the I am proud to have been part of the gains impressive. I see the 69% increase in KiwiRail journey over the past six years our long–term import/export freight as an indicator of the and would like to acknowledge the strength customers for their customer focus that KiwiRail now brings to of our people and commitment of our all of its operations. Building resilience for shareholders, who have supported the ongoing partnership those customers has also been a driving integral role played by KiwiRail in New as KiwiRail evolves force as seen by the large number of aging Zealand’s transport system. bridges that have been replaced, the more KiwiRail inherited a business that had and changes. than $2 billion invested in metropolitan suffered significant underinvestment, was networks since 2010 and the 85% reduction asset–centric and was often subjected in derailments over this period. to negative commentary as inefficient The commitment to raising our safety and ineffective. With the support of the standards has seen total injuries drop Government and our partners, the benefits by 69%. Safety is truly at the centre of of ongoing investment and a commercial everything the organisation now does. drive are now being realised. This year’s results are in line with the Customers are at the core of that continuing transformation of the business. transformation and I would especially like The underlying operating surplus of $86 to thank our long–term customers for their million with total revenue of $694 million has ongoing partnership as KiwiRail evolves and been achieved despite difficult international changes. trading conditions. Productivity initiatives I have been very fortunate to have delivered a creditable $27 million in savings. been supported by a highly competent Targeted investment is based always on and dedicated Board. In particular, I the customer’s needs, enabling growth, acknowledge the commitment of Bob Field reducing supply chain costs and driving who retired from the Board in April and I am their – and our – market competitiveness. pleased to welcome our new members Mike These efforts have been rewarded by Pohio and Paul Harper. significant growth in freight volumes, I look with confidence to the year ahead and building on increases in recent years. We beyond. have moved 100 million tonnes of freight since 2010 making KiwiRail truly New Zealand’s logistics partner for growth and a critical part of the Government’s Business Growth Agenda. Working alongside the New Zealand Transport Agency we are focused on improving land transport resilience and optimising planning and investment. John Spencer Chairman

10 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Management review: Chairman’s message to stakeholders

Roger Perry, Track Ganger, Auckland Network Services

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 11 Management review: Our progress 2010–2016

Our progress 2010–2016

100 million Tonnes of freight moved 14% increase in Freight volume 69% increase in Import & Export volume 19% increase in Domestic volume 29% increase in maximum tonnage capacity for wagons

27million Commuter trips each year

Over $2b invested in metropolitan networks including completion of Project DART: Developing Auckland’s Rail Transport and Wellington Region Rail Programme 85% Reduction in mainline derailments

Investment in growth corridors, rolling stock and intensified focus on safety and training

Introduced Kaiarahi and retired Arahura Transported 382,000 commercial trucks, 348,000 freight wagons and 4.5 million passengers 9% increase in customer satisfaction to 87%

12 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Management review: Our progress 2010–2016

Timber bridges between Auckland 530,000 and Tauranga 21 replaced New sleepers laid

Reduced freight fuel burn rate by

km 1,300 147 New wagons New track laid introduced 11%

Transformation of Tranz Metro 1,010km 70 million passengers Line destressed 15% passenger growth 17% on time performance improvement to 96%

48New Total injuries down by locomotives 2,100m introduced Bridge 69% timber spans replaced 14% Reduced freight carbon intensity 322 13% 1.2 million Bridge timber Increase in piers replaced locomotive Long distance Scenic Journeys reliability passengers

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 13 Management review: Chief Executive’s report

Chief Executive’s report

The last two years at KiwiRail have market demand and weather conditions been a period of significant change which impacted the dairy season. Central to our as we have focussed on a multi–year However we’ve achieved continued transformation programme of work growth in the import export sector of transformation reshaping our business to be a trusted 11%. The tourism market was also “ Kiwi owned logistics partner growing strong, resulting in 10% growth in our programme is the New Zealand. Interislander and Scenic Journeys leadership commitment passenger services. I am pleased to report that the to engage meaningfully momentum we have been building Our productivity intiatives delivered $27 with our frontline is starting to provide real gains, as million in savings, reflecting a leadership reflected in this year’s improved focus across KiwiRail to implement the people creating a culture financial management record, our safety changes needed to build a cost efficient which supports performance and the transformation in service promise for our customers and our leadership and culture. shareholders. fairness, diversity, At the centre of that transformation inclusion, safety project is, of course, our customers. At Empowering our people and pride KiwiRail our core purpose is to move Central to our transformation people and freight, not trains and ships. programme is the leadership This relentless focus on improving our commitment to engage meaningfully business to help our customers be more with our frontline people, creating competitive, assist the Government’s a culture which supports fairness, Business Growth Agenda and offer diversity, inclusion, safety and pride. world–class tourism experiences is the Some of our programmes which are value we bring to New Zealand. changing the way we operate include It is fitting, I believe, that 2016 is the a High Performance High Engagement year we use the Integrated Reporting approach. With the close involvement framework for the first time, highlighting of union leaders and members, we not only our commercial focus but the are enabling direct and meaningful, know–how, relationships, resilience, involvement in problem solving and environmental practices and people that improving the way work is done, which make us who we are. raises productivity, improves safety and lifts our customer care. This is Improving our financial a significant commitment with our people and union partners to improve position the company’s performance for our This year we achieved a creditable customers and shareholders. result, with an underlying operating surplus of $86 million and delivered Sustaining a Zero Harm on our budgeted commitment to our shareholder. environment We believe that Zero Harm is a proxy Bulk milk and coal revenues were for leadership. Zero Harm at KiwiRail down by $18 million this year due to includes reducing high safety risks,

14 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Management review: Chief Executive’s report

Niko Koligi, Rail Operator improving the health and wellbeing Delivering operational saved 3 million litres of fuel and 8,800 of our employees and reducing our tonnes of CO2 emissions. environmental impact. This year we performance I would like to thank our customers delivered a 39% improvement in Lost Our strategic plan to standardise our for their commitment, particularly Time Injury Frequency Rate and a 33% asset platforms, simplify the business in these times of change when we improvement in Total Recordable Injury and invest in our people has improved are continually reviewing our asset Frequency Rate. Over the last two our operational performance and platforms, service propositions and years our total injury frequency rate has reliability across the entire business. freight planning systems to improve reduced by 73%. In July 2015 we farewelled efficiencies and simplify the business to Our focus will remain on lifting our Interislander’s Arahura ferry and help us deliver reliable services. leadership engagement and building welcomed the arrival of Kaiarahi I would also like to thank the Board for consistent, fit for purpose safety providing our customers more capacity their guidance and governance, the systems, tools, learning opportunities to to move freight between road and rail. Executive team for their leadership and reduce our safety and health risks. In June this year we ran a full road– all our people for their hard work in a bridging operation across Cook Strait year which saw us deliver a number of Engaging our customers while our rail–ferry Arahura was dry– our goals in our transformation project. KiwiRail has a significant role in driving docked in Singapore. The successful As One KiwiRail business I am very New Zealand’s export agenda, carrying eight–week project demonstrated the proud of the significant momentum that a quarter of all New Zealand exports. benefits of a One KiwiRail approach our people are delivering to live our We work closely with our customers to our infrastructure investment for our vision, personalise our values and make by lowering supply chain costs to help customers. The service performance of KiwiRail a more commercially focused them increase competitiveness in their our Interislander ferries was particularly and inclusive place to work. global market place. We are already notable, with 99% of scheduled sailings realising commercial returns from our going ahead as planned. partnerships with export–led customers I would like to make a special note of as import/export freight revenue grew the Tranz Metro team who transitioned $15m in the past 12 months. to Transdev on 3 July 2016. KiwiRail This year we have worked closely is extremely proud of the Tranz Metro with Port customers on their decisions team and the professional operation to invest in inland freight hubs. We they have run. We wish to express our are investing in capacity for future utmost appreciation to all the staff and wish them the best for the future. growth which includes investing Peter Reidy $18m on freight, intermodal wagons, Along with our commercial performance Chief Executive and additional capital for our freight focus, KiwiRail delivers sustainable infrastructure. wider benefits for New Zealand. In the Domestic freight growth and additional last 12 months we have reduced heavy export container volumes has prompted vehicle impact of 1.1 million trucks us to invest $15 million in our Auckland on our roads, 208,000 tonnes of CO2 Container Transfer site. We have further emissions and 77 million litres of fuel. investment earmarked to expand the Diesel fuel savings through the DAS site into a super freight hub for the (Driver Advisory System) technology growth of our largest city. system introduced during the year has

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 15 Business review: Performance of our business units

Performance of our business units

Freight Interislander Infrastructure

Contributing 56% of total operating Interislander is key to our logistics KiwiRail continues to align its revenue, freight remains the biggest business, enabling a seamless infrastructure investment priorities with income earner for the business. customer service between customer needs and freight demand. Auckland and Christchurch. Revenue from the import/export freight We are targeting investment on growth sector was up 11% in the last 12 An extension of State Highway 1 linking corridors including the freight critical months, but tough trading and climate road and rail networks, Interislander Auckland/ Hamilton/ Tauranga routes. conditions in the bulk coal and milk ferries carried more than 1 million Over the last 12 months we have sectors reduced bulk volumes. net tonnes of freight and 83,000 continued to invest in the Kaimai Tunnel commercial vehicles across the Cook and have now completed replacement Success in the market is underpinned Strait during the year to 30 June 2016. of all 21 timber bridges between by more customers and ports using rail Auckland and Tauranga, increasing as an integral component of their supply The arrival of Interislander’s latest network resilience by removing speed chains. Over the last 12 months KiwiRail ferry Kaiarahi in September 2015 restrictions and improving reliability for has worked closely with our partners to has enabled us to move freight more freight customers. develop new rail–served operations that readily between road and rail, providing will improve the flow of goods. customers with more flexibility in In Auckland we are considering wider managing supply chain logistics. transport requirements with key Reliability for freight customers remains stakeholders to reduce congestion, a core strategic focus, with a number We are seeing strong growth in tourism, improve network resilience and improve of improvements implemented over with more than 800,000 passengers freight flows to and from the Port of the last six months. These include using Interislander services in 2015/16 Auckland and Port of Tauranga. This will simplifying our train plans, improving and record passenger numbers in remain a key focus in 2016/17. network reliability and investing in new off–peak and shoulder periods. This rolling stock. reflects increasing customer satisfaction We continue to maintain and upgrade in the quality of the service we offer. urban metro rail networks in Auckland and Wellington to enable passenger growth, and remain focused on maintaining asset integrity across the $109m $25m balance of the network. operating surplus operating surplus $155m $15m 99% capital investment on time performance (actual growth in IMEX revenue services to advertised sailings) 87% $18m 82% reduction in mainline invested in new wagons and containers customer satisfaction derailments since 2010

16 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Business review: Performance of our business units

Scenic Journeys Property Tranz Metro

Continued growth on all TranzAlpine, KiwiRail continued to adopt a With a record 12.8 million passenger Coastal Pacific and Northern Explorer commercial approach to the property trips on the Wellington commuter train services, boosted by a buoyant tourism portfolio we manage, which comprises network in 2015/16, Tranz Metro has sector, resulted in a 19% increase in more than 1500 property assets with been benchmarked as one of the best Scenic Journey revenue to $30 million a combined value of more than $965 metro operations in Australasia. in 2015/16. In February 2016 we set a million. Customer satisfaction for the year was new record with more than 1,200 people We are reviewing our lease and 93%, with 96% of services operating on travelling on Scenic Journey services in licence arrangements to ensure they time (within 5 minutes of the scheduled one day. are managed in a fair and commercial timetable). The services are continuing to gain manner. We are also working with key While KiwiRail has a proud history national and international recognition business partners and tenants to better of operating passenger services in with the TranzAlpine receiving a Trip understand their needs and increase the the Wellington region, Tranz Metro Advisor Certificate of Excellence, use of our property assets. operations ceased on 3 July 2016, and the Northern Explorer services Over the last 12 months we have following a decision by the Greater nominated for the UK based Luxury partnered with a number of customers Wellington Regional Council to transfer Travel Guide – Global Awards 2016. to lease land for new rail served the contract to Transdev. KiwiRail will operations, adjacent to our rail yards. continue to maintain and operate the These initiatives enable KiwiRail to track and signals. improve the efficiency of customers’ supply chains and generate income growth through long term sustainable leasing arrangements. $4m operating surplus

$10m $38m operating surplus operating surplus* 93% *excludes facilities management customer satisfaction

9% $18m growth in passenger numbers in proceeds from property asset sales in 96% FY16 (including Capital Connection) FY16 on time performance

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 17 Capitals review: How KiwiRail creates value

How KiwiRail creates value

INPUTS VALUE DEPLOYED IN 2016 IN THE KIWIRAIL BUSINESS

FINANCIAL SIMPLIFY Capital grants $33m Revenue generated from • reliable services for our operations $694m customers Government Investment $210m • focus on our strengths • improve productivity PEOPLE* Average age 45 years 15% female 27% employed longer than 20 STANDARDISE years 63% union members • wagons *post Tranz Metro transition • locomotives • track assets • terminals & ferries 9158 9158 ASSETS • intermodal strategy Property, plant and equipment of $17b replacement value

KNOW–HOW Custodian of the country’s railway infrastructure Specialist rail and marine knowledge

RELATIONSHIPS Customers Suppliers Employees Communities Union Iwi Government

ENVIRONMENTAL 53m litres diesel used 36m litres marine fuel used 111 GWh electricity used

18 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Capitals review: How KiwiRail creates value

IN THE KIWIRAIL BUSINESS OUTCOMES TO BUILD SUSTAINABLE BUSINESS

INVEST RELIABLE Skilled and safe workforce • safety 69% reduction in injury rate since FY10 85% reduction in mainline derailments since FY10 • growth corridors 94% customer satisfaction for Scenic Journeys • training Volumes: • network Freight 4.5b net tonne kilometres • leadership Interislander 1.3m commercial lane metres Infrastructure 73,000 sleepers laid 249m of bridge replaced 15km new rail installed 93km of track distressed Capital investment $254m Work with TrackSAFE Educate community groups and schools

SUSTAINABLE 3 million litres of fuel saved in FY16 through the Driver Advisory System

Saved 209,000 tonnes of CO2 emissions Avoided 77 million litres of diesel consumption Support community conservation initiatives Long term viability Upgraded 8 public level crossings

VALUABLE Underlying operating surplus $86m Ports Enabling transport resilience Enabling New Zealand export agenda Inland Ports / Freight Hubs – Current Transported 16% of New Zealand’s total freight 11% import/export growth Coal 10% passenger growth $105m tourism revenue Major Forestry 230,000 Scenic Journey tourism passengers 130,000 Capital Connection customers

Major Dairy/Meat/ Manufacturing Plants $15m contribution to West Coast economy through TranzAlpine

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 19 Case Study: Fonterra

Helping to grow our exports Case Study

The world’s largest dairy exporter Fonterra and KiwiRail have together Fonterra Plant, developed a sustainable logistics partnership that’s bringing encouraging Photo Andrew Hamblyn results for both organisations. Fonterra transports a wide range of “We see KiwiRail as an integral partner in product by rail, including 2.3 million our supply chain by helping us shift large tonnes of bulk milk and finished product. volumes of bulk material efficiently – and improving the carbon efficiency of our In the past year, dairy exports by rail have supply chain,” says Chris. increased by 21% thanks to more flexible and tailored timetables to accommodate KiwiRail’s Steel Wheels reporting tool has Fonterra’s production at its manufacturing created additional value for Fonterra by sites. For example, Fonterra uses rail to calculating the number of truck journeys move 90% of product from its Edendale avoided and related savings in fuel and

site – the largest dairy production facility CO2 emissions. in the southern hemisphere. And this is “Sustainable supply chains are important expected to grow further in the coming to Fonterra and our customers”, says season. Chris. “Reducing our carbon footprint is Fonterra’s General Manager Global a key component of our relationship with Supply Chain Development, Chris Foord, KiwiRail.” says simplifying the supply chain is critical to improving returns to our shareholders.

20 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Capitals review: Financial

Financial The financial resources that are available to KiwiRail to develop and grow our business

As a State–Owned Enterprise, KiwiRail Above rail includes operating trains and operates as a profit–oriented entity. ferries, and managing the commercial Our Financial Capital However, shareholder support is property portfolio – areas that are cash currently needed to meet the required positive, meaning costs are covered by level of capital investment in the revenue earned. business. Since 2010, the company Below rail includes operating and has been implementing a sustained maintaining tracks, bridges and tunnels programme of investment to ensure – areas that do not generate sufficient the rail network can deliver the highest revenue to cover costs, requiring levels of service expected by passenger Operational Revenue Government investment to sustain and freight customers. them. In Budget 2015, the Government KiwiRail currently operates and announced a two–year funding package Government Investment maintains about 3,500km of rail track, to invest in the rail system, with $210 regardless of the volume of passenger million in FY16 and $190 million in services and freight. A commercial FY17. review of KiwiRail operations in 2014 Grant Funding found insufficient demand to enable Understanding our KiwiRail to fully fund the rail network performance – above and including tracks, signals, bridges and Asset Sale Proceeds below rail tunnels. When considering KiwiRail’s finances, The review also underlined the it is useful to distinguish between the challenges KiwiRail faces in “above rail” and “below rail” parts of the reconfiguring its operations, with historic Debt Funding business. under–investment in the network a notable barrier to commercial success.

Above Rail = Cash positive

9158 9158

Below Rail = Requires Crown funding

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 21 Capitals review: Financial

Transforming KiwiRail – Productivity and Efficiency Economic Value of Rail benefits of easing traffic congestion, and lower repair, maintenance and The Board and management are to New Zealand upgrade costs to our roads. committed to lifting performance and making the company commercially Understanding the value of rail to In the absence of rail freight, stronger to reduce reliance on taxpayer New Zealand is a key strategic these items would all incur costs support. While discussions will continue project in the road/rail integration for New Zealand businesses, about the viability of maintaining our programme currently being Government agencies and other 3,500–kilometre rail network without undertaken by KiwiRail and the NZ organisations. Together they make customer usage at commercial rates Transport Agency. This is crucial up the value of rail, not the more to cover costs, KiwiRail remains for better planning and investment narrow view of the cost of rail. focused on operating commercially and when considering New Zealand’s Several stakeholders including supporting the growth of New Zealand land transport needs beyond a New Zealand Transport Agency, exports and tourism. traditional ‘return on investment’ Ministry of Transport, Treasury, analysis. Auckland Transport and Greater Last year was a period of significant Wellington Regional Council have change for KiwiRail as we worked to Rail freight delivers economic agreed the framework for the project transform the business and lift the benefits and positive outcomes that and outcomes which will inform company’s performance. Over the are not always seen at first look. discussions on what a national rail year we made considerable progress These include reductions in road network brings to New Zealand. delivering our strategy of simplifying our accidents, fewer emissions into business, standardising our assets and the environment, the commercial investing in our people. A key part of this strategy has seen us focus on a range of productivity initiatives to enable us to deliver a more efficient and effective service to our customers. We’ve worked with teams across the business to identify better ways of working. This approach produced $27m of savings last year, reflecting the strong commitment across the organisation Reduce heavy vehicle impact of Helping commuters make 27 million to implement the changes required to more than 1 million truck trips low–carbon journeys each year achieve better results for our customers and shareholders. Key initiatives included: • Rolling out the Driver Advisory System to enable us to determine the most fuel–efficient means of 2 operating locomotives CO • Right–sizing our corporate overhead and reducing discretionary expenditure Diverting over Avoiding approximately 80 million litres of Reducing congestion, • Optimising the size of our vehicle 200,000 tonnes of diesel consumption by making our roads safer fleet carbon emissions road freight • Simplifying our train plan. We have also made some difficult but necessary decisions to reduce our headcount by 240 as a result of productivity and efficiency gains. You will find further information and examples of these initiatives in our case studies on pages 27 and 39. Creating long–lasting Contributing to Helping community two–way relationships New Zealand’s groups, schools and with customers, suppliers economic growth sports groups to travel and other stakeholders

22 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Case Study: Increasing the value of tourism

Increasing the value of tourism Case Study

With a contribution of more than $19 billion to Gross Domestic Product and 19% TranzAlpine service stopped of total exports in the year to March 2016, tourism is undoubtedly an engine for at Greymouth Station New Zealand’s economic growth. In 2015/16, KiwiRail carried more than one The TranzAlpine service is rated among the million passengers on our tourism services, world’s best train journeys and the Northern with increased passenger numbers on both Explorer was nominated for a 2016 Holiday Interislander and Scenic Journey services & Tours award by the UK–based Luxury resulting in record tourism revenue of $105 Travel Guide. million. Overseas visitors accounted for 65% KiwiRail’s three Scenic Journeys rail of passenger journeys on these services. services span the length of the country The economic benefits of KiwiRail’s and traverse some of New Zealand’s most tourism services are most keenly felt in spectacular landscapes. The services smaller towns, such as Greymouth, where connect key tourist destinations including businesses including hotels, restaurants, National Park in Ruapehu District, Arthur’s and car hire companies rely on train Pass in the Southern Alps, and Picton in passengers. West Coast Tourism estimates the Marlborough Sounds, a gateway to the that the TranzAlpine brings in excess of $15 South Island. million per annum to the region. KiwiRail is committed to continued As the manager of the i–SITE at Greymouth investment in its tourism services to ensure Gina Ashworth says: “The TranzAlpine the economic benefits continue to be Train, Punakaiki, and the Glaciers are the realised. three main draw cards for tourists to the West Coast.”

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 23 Capitals review: People

People Our people bring the know–how and skills to enable the business to deliver on our customer promise

Our people are key to reshaping our business and enabling the transformation of KiwiRail. Our workforce We are investing in leadership capability 3,400 and working with staff and our union partners to build a culture of collaboration that underpins a “One KiwiRail” approach. Safety continues to be a critical priority, and we have an ongoing commitment to building safety leadership. Over the past 12 months 460 people have participated in our in–house leadership development programmes. Our traditional rail and logistics workforce is, as you would expect, heavily dominated by men but our leaders and recruitment team are working on a range of initiatives to lift the profile and number of women in the workplace. We will support and grow our people 85% Men 15% Women by further embedding our One KiwiRail healthy workplace strategy in all teams across the organisation. Our programme of 48 average 41 average activities will focus on health protection and age (years) age (years) wellbeing. Engaging with staff and 15 years of 6 years of unions service service During the year we worked closely 98% on 92% on with staff and the Rail and Maritime permanent permanent Transport Union (RMTU) to embed a High contract contract Performance High Engagement (HPHE) culture. Our objective has been to develop a shared understanding of KiwiRail’s 89% 11% business environment and of the respective Executive team Executive team visions and strategies of both parties. Key features of the HPHE approach include 73% new 27% new joint problem solving, collaboration and appointments appointments ensuring that workplace solutions are developed alongside those closest to the challenge at hand. A joint RMTU/KiwiRail Governance Council has been established to develop a common vision and purpose and a joint working party has developed a HPHE Charter.

24 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Capitals review: People

Prathamesh Bhaswande, Third Officer Engineer

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 25 Capitals review: People

A HPHE pilot programme is underway at Providing safety leadership leadership, engaging our workforce Hutt workshops and is explored further in the development of a nationally in the case study on page 27. The risks inherent in any heavy consistent safety culture, understanding infrastructure business mean that the high potential fatal risks, and reducing Investing in our people safety of our people, contractors and the number of serious incidents or near the public is a constant focus for the misses. KiwiRail Board, Executive and all staff. Over the past year, 220 frontline staff Critical Risk Networks bring subject took our “Back to Basics” training KiwiRail’s ongoing commitment to matter experts from across the business programme that provides staff with a zero harm environment has seen together to focus their collective efforts the tools to contribute to our five a significant reduction in workplace on the organisational safety risks which fundamental focus areas: sustaining injuries and risk over recent years, have the greatest potential for fatalities. a zero harm environment, engaging with a 69% improvement in our safety Critical Risk Networks are now in place our customers, delivering operational incident rate since 2009/10. for track occupancy, Signals Passed performance, empowering our people at Danger, tunnels, level crossings While our safety performance has and improving our financial position. and contractor management. Each improved markedly when benchmarked area has a specific strategy and action against the transport and port sector, In addition, we hosted “Just and Fair” plan for systematically reducing risk we remain behind leading Australian culture workshops around the country, exposure. The action plans include and New Zealand heavy asset/fatal focused on bringing together managers, a mix of technological innovation, occurrence businesses including staff, union delegates and Health & behavioural change and new processes. Santos, Origin Energy, Rio Tinto and Safety leaders to understand the tools Governance for each Critical Risk Downer NZ. available to investigate safety incidents, Network includes an Executive sponsor and to run disciplinary processes fairly. To drive continued improvement in our and progress reporting on a monthly safety performance, the business is basis. placing a strong emphasis on visible

Māori (Toi Toi) Cadetship country and she was inspired by what experience refurbishing components Māori leaders in the business are of locomotive engines which is Dodie Joseph, who is affiliated achieving. This year Dodie moved fuelling her passion for technical with Te Arawa and Te Whakatohea to the Hutt Workshops to start an learning. “It has been a humbling iwi, joined the cadetship as a train apprenticeship. The network Dodie experience networking among other examiner in the Palmerston North established through the cadetship KiwiRail people and knowing they wagons team. The cadetship has helped her to settle into the new truly have your best interests at introduced her to other KiwiRail role. Dodie is now gaining hands–on heart,” Dodie says. people from different parts of the

Dodie Joseph, Apprentice Mechanical Engineer

26 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Case Study: High Performance High Engagement

High Performance High Engagement Case Study

The High Performance High Engagement (HPHE) programme Strachan Crang Industrial Relations Principal Advisor and Allan embedded in the Wellington Hutt workshops brings frontline people, McConnochie, Mechanical Engineer unions and management together to review work practices and identify areas for improvement. One opportunity the team has identified The brake lever arm initiative has is improving the process to reassemble reduced the build time by up to 8 the brake lever arm on a “bogie” or train hours, and is one example of recent wheel. improvements that have reduced the turnaround time for a bogie overhaul by Formerly, our people were working at 17%. ground level on pallets, which made the assembly challenging and created By involving those closest to the safety risks. The HPHE project team challenge in developing solutions we designed a new assembly jig table at have been able to achieve tangible standing level with clamps to secure the improvements in productivity and parts, which have been relocated and engagement. sorted for easy access. The new system has reduced safety risks and improved efficiency of the process.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 27 Capitals review: Assets

Assets The assets and property that we own and utilise to deliver our services to customers

KiwiRail’s ability to offer a reliable and trusted service to customers is underpinned by the efficiency and effectiveness of our $17 billion asset and infrastructure portfolio. Aligning our investment priorities with customer needs, and standardising our assets to ensure they are safe, SUPPORT reliable and fit for purpose, is vital to our success. INFRASTRUCTURE

VEHICLE FLEET ROLLING STOCK FERRY TERMINALS

SERVICES LOCOMOTIVES

STATIONS

IT SYSTEMS OUR FREIGHT CARRIAGES BRIDGES INTERISLANDER CUSTOMERS PASSENGER

TRACK

WAGONS

WORKSHOPS

| SHIPS DEPOTS OFFICES TUNNELS

28 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Capitals review: Assets

Improving customer The completion of the Taupiri bridge In June 2016 we announced plans to project near Huntly in November purchase 15 additional DL locomotives competitiveness 2015 signalled the end of a nine–year to replace ageing rolling stock and KiwiRail has continued to invest in programme to remove all timber pier meet anticipated freight demand on key track infrastructure and rolling stock to bridges from the ‘golden triangle’. routes, including the North Island Main Trunk. improve the resilience of the rail network Refurbishment work is also continuing in and meet customer expectations of the Kaimai Tunnel in the Bay of Plenty, efficiency and flexibility. with $6 million of upgrades completed Highway across the sea Our continued focus on standardising over the last 12 months. This work is Our three–ship fleet provides our freight and improving assets is delivering part of a longer term programme to and tourism customers with an efficient benefits to our customers. Over the last reduce maintenance requirements in the and resilient ferry service that bridges 12 months temporary speed restrictions tunnel, improve reliability and security of State Highway 1 in the North and South on the freight–critical North Island Main the East Coast Main Trunk, and support Islands. key customers including Fonterra and Trunk have reduced by 46% resulting in Following the retirement of Arahura in the Port of Tauranga. improved on–time performance for our July 2015 and the arrival of Kaiarahi customers. We are increasing our rolling stock in September 2015, Interislander In the past year we have invested $155 capacity and improving fleet planning continued the “road bridge” across million in network capital expenditure, to lift the performance of our premier the Cook Strait. This provides overall targeting investment on key freight freight train services. In the last 12 resilience to our freight network, lines including the business–critical months, 120 wagons have come into supporting freight movements to and Auckland–Hamilton–Tauranga route and service, as part of our strategy to from the South Island and helping in the the North Island Main Trunk. standardise our rail fleet. growth of our regional economies.

Refurbishment work being carried out in the Kaimai Tunnel in the Bay of Plenty

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 29 Case Study: Inland ports and freight hubs

Inland ports and freight hubs Case Study

An increasing number of our customers and ports are investing in Palmerston North CT Site. development and upgrade of multimodal freight hubs and inland ports, driven partly by the imminent arrival of bigger container ships to New Zealand. The increase in inland ports and freight The site is the third largest container hubs also provides safety benefits for handling facility in New Zealand, motorists by reducing the number of providing a critical freight gateway for trucks on the road. the country and playing a key role in enabling continued economic growth. Over the last 12 months, KiwiRail has entered into a number of new The upgrade will deliver an additional partnerships with ports, logistics 35% to 40% capacity on site, improve providers and freight manufacturers to truck access and loading times, and link new freight hubs to the rail network. enable significantly more freight flows to and from Auckland. In March this year, KiwiRail announced a $15 million upgrade to the Auckland container site.

30 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Capitals review: Know–how

Know–how The specialist knowledge and information our business has and our ability to innovate to meet the changing needs of our customers, driving efficiencies across the supply chain

Michael Keenan, Team Leader Structures

With a legacy dating back more than Building intermodal freight are then towed aboard the ferries, and 150 years, KiwiRail is able to draw on discharged using the opposite process the depth of logistics, rail and maritime capacity on arrival. The trailers used for road expertise within our business to meet KiwiRail is transitioning to an intermodal bridging need to be designed to carry the needs of our customers and drive asset base, enabling freight to move the high load weights of rail containers efficiencies. Many of our staff have easily between ships, trains and trucks. and to be easily manoeuvred. Our developed specialist skill sets in the With more than half of our wagon fleet mechanical teams have developed rail industry during their long careers now intermodal, we are making it easier a new trailer configuration and are within KiwiRail. For example, our rail for customers to carry freight on our currently trialling this solution within the engineering team are renowned experts rail and ferry services and transition business. in their field and are recognised for between road and rail networks. These systems were put to the test their innovative approach to developing in mid–2016, as the Aratere went into solutions that perform in our unique and The arrival of Kaiarahi into the dry–dock for eight weeks. The success challenging rail environment. Interislander fleet in September 2015 has taken us closer to standardising of the road–bridging operation was We are continually innovating, our ships and to operating a full “road evidence of our ability to operate an embracing new technology and bridge” service across the Cook Strait. effective full road–bridging solution in simplifying our business processes the future. to provide better services for our Road–bridging involves lifting rail customers. containers onto road trailers, which

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 31 Capitals review: Know–how

During the year, New Zealand’s first makes rail more competitive over the wagon, 15 tonnes more than using commercial 20–tonne axle load rail short 45 km journey. Tony Pepperell, standard wagons. KiwiRail also service began operating between from KiwiRail’s Fleet Engineering partnered with Royal Wolf to produce Pacific Steel’s Glenbrook and team, designed the 40–foot wagons purpose–built cradles to carry the Otahuhu mills. The higher axle load that can carry 61 tonnes of steel per steel on the wagons.

Transforming urban ensuring safe clearances for wires The technology provides real–time under 24 bridges and through two data to train drivers and applies brakes commuter services tunnels, installing a 25kV overhead automatically if a train gets close to KiwiRail’s role in the transformation of power system to create a high capacity, breaching its safe operating speed. Auckland’s urban rail network has been electrified railway and a state–of–the– KiwiRail’s signalling team is using this acknowledged with two major awards art signalling and train control system. technology to better manage journey times and network capacity. over the last year. In 2016 KiwiRail, KiwiRail’s infrastructure solutions have alongside contractors Siemens and enabled Auckland Transport to replace Hilor, received the Rail Project Award its aging diesel locomotive–hauled from the Railway Technical Society trains with modern, electric units that of Australasia for the electrification have introduced new levels of comfort, and re–signalling of the Auckland safety and reliability. The new services urban rail network. The Chartered have contributed to a significant Institute of Logistics and Transport increase in passenger numbers over also acknowledged the project in 2016, recent years. awarding it the “Most Innovative Public Transport project”. Since 2014, KiwiRail has been working to successfully deploy on–board Work to deliver a fully electrified computer technology on Auckland passenger network between Papakura passenger trains to improve safety and and Swanson began in 2007. It included service for train drivers and passengers.

32 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Case Study: eProtect: innovative safety initiative helps save lives

eProtect: Innovative Case Study safety initiative helps save lives

CSP Mis88 AUTHORITIES Rule 905 1000m Cab warning ENTER CSP 500m Cab warning APPLICATION eProtect COMPUTER Speed check CREATES PROTECTION Stop check DATA FOR TRAIN STOP POINTS DATA FILE CONTROL Mis88 ISSUES TRACK WARRANT Data sent to loco by cell Interceptor network when warrant issued or CSP entered

9158 9158

w

KiwiRail’s teams have developed an innovative, electronic safety initiative called eProtect to improve the safety of our workers in the rail corridor. eProtect uses GPS to communicate stops the train before it encroaches on information about worksites to all trains a worksite. operating on the network and applies A simple yet innovative solution, to 100% of mainline locomotives in eProtect helps improve efficient the South Island and 80% in the North operation of the network by reducing Island. the risk of work site over–runs and If a train approaches a worksite associated delays from incident too quickly, the eProtect system investigations. automatically applies the brakes and

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 33 Capitals review: Relationships

Relationships The relationships we have with customers, logistics partners, unions, Government agencies and communities are central to the commercial success of our business

As a national logistics provider that moves people and freight, we interact with a wide range of individuals and organisations on a daily basis. Government We rely on the strength of our Agencies relationships to understand and address (National and Shareholder the views and priorities of our customers Local) Ministries and stakeholders, and to help shape and grow our business.

Partnering with customers Iwi to drive economic growth Suppliers We are working to reduce supply & KiwiRail chain costs to make our customers Contractors competitive in the global marketplace. Through our freight, passenger and Unions commercial property operations, we serve customers across multiple sectors.While the majority of our revenue comes from Freight customers, Customers our Passenger (Interislander and Scenic Journeys) and Property businesses are Community experiencing significant growth. Employees The charts on the following page show the source of KiwiRail’s revenue and a breakdown of our Freight revenue by sector. It is worth noting that the non– commodity driven freight activities are where we can have the greatest degree ports and freight hubs. In the past 12 due to population growth and modal of influence on our market share as they months we have seen new hubs in conversion opportunities.KiwiRail is are less susceptible to price movements Auckland, Christchurch, Whanganui, continuing to reshape its offering for caused by external factors. Palmerston North and the Wairarapa, this market. Our focus is on continuing In the Freight business, we have seen with plans announced to develop further to partner with our key customers and strong growth in the import/export facilities in Waikato, Tauranga and New ensuring we deliver on our service (IMEX) sector and this is forecast to Plymouth. promise. continue. The move by shipping lines A number of customers are also moving Our continued focus on growing the to bring larger ships to New Zealand to longer–term supply agreements domestic and IMEX sectors, and further is a positive opportunity for KiwiRail as and developing logistics facilities that developing our non–freight markets, this leverages our ability to aggregate access our rail network. These facilities will help us to withstand the ongoing and move large volumes of freight increase rail freight volumes while challenges in commodities. The current with speed to and from ports. We allowing freight flows to be optimised outlook for key commodities such as are continuing to build partnerships across road and rail. coal and milk products continues to be with customers and ports, as part of challenging due to global demand. our strategy to simplify supply chain The domestic market remains a logistics and connect to more inland sustainable growth sector for KiwiRail

34 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Capitals review: Relationships

Total External Revenue Freight Trading Revenue by Sector

Scenic Journeys

Tranz Metro Bulk

Property & Corporate Freight IMEX Infrastructure Forestry

Interislander Domestic

Working with Government passenger and freight growth. The 7km awareness about rail safety and ways to line would improve network resilience keep safe around tracks and trains. agencies to build an and freight flows to and from Ports of KiwiRail also works with stakeholders Auckland and the Port of Tauranga. effective land transport to host Rail Safety Week – a nationwide system Over the past year, KiwiRail has also campaign targeted at addressing the been working with NZTA on key cycleway rising number of incidents at pedestrian We are working closely with the NZ initiatives. These cycleway projects will level crossings, particularly in urban Transport Agency (NZTA) and other be developed by councils or NZTA and areas. local and central government agencies will utilise KiwiRail land. KiwiRail is also Working alongside local communities to to coordinate planning and optimise providing assistance to progress Urban address specific safety concerns on or investment in road and rail networks. Cycleway Fund projects, which are due around the rail corridor is another area for completion by June 2018. We are undertaking a joint partnership of focus to promote safety. For example, approach with key stakeholders for the KiwiRail has worked with the people of review of Auckland’s future transport Building safer communities Ngaruawahia to address incidences of requirements which could involve KiwiRail is a key sponsor of TrackSAFE dangerous behaviour and trespass on development of a third main rail line NZ, a charitable trust that raises the rail corridor. between Westfield and Wiri to enable

Peter Reidy, Chief Executive and Hon Simon Bridges, Minister of Transport, talk to children from Paekakariki School during Rail Safety Week

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 35 Case Study: Working with communities to deliver results

Working with communities to deliver results Case Study

Working with iwi and community leaders, Waikato District Council and Peter Dauterman, Construction Manager and Major Herewini, government agencies has been an integral part of the successful Taupiri Kaumatua for Waikato Tainui and rail bridge replacement project. for the Taupiri Urupa Committee The bridge is located near Taupiri bridge and eliminating significant safety Maunga – a sacred mountain and risks – including a dangerous rail urupa (cemetery) for many Tainui crossing. The new railway bridge work people, including ancestors of the was conducted sensitively and with Māori King. the full consultation and input of iwi representatives and other stakeholders Together with representatives of our – a model for other projects in the Māori staff network – Te Kupenga Mahi country. – KiwiRail has worked with Waikato– Tainui iwi representatives and the local The Taupiri Bridge project is part of community to develop a culturally– a wider programme to replace eight appropriate approach to the project. timber bridges on the North Island Main Trunk with new structures. The KiwiRail is working together with strengthened bridges will enable faster many of the local stakeholders to train speeds and heavier loads on the provide safe access to the urupa, by line. supporting the construction of a new

36 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Capitals review: Environmental

Environmental The natural resources that we nurture and protect through operations to ensure the environmental and financial sustainability of our business and future generations of New Zealanders

As global interest and consumer Taking carbon out of our tool is a graphic depiction of the number awareness about climate change and of rail trips undertaken by KiwiRail, the carbon emissions grows, KiwiRail is customers’ supply chain equivalent truck trips avoided by using well placed to support its customers and The carbon intensity of rail is less than rail to shift freight, and the resulting fuel the wider transport sector achieve New a third of road–based transport, with and carbon dioxide emission savings, Zealand’s greenhouse gas emission further gains anticipated as KiwiRail relative to the same volume of freight reduction targets. makes ongoing improvements in fuel travelling by road. Rail has the ability to move large efficiency. KiwiRail provides this information on volumes of people and freight along a In February, KiwiRail launched the a monthly, quarterly and annual basis narrow corridor, using relatively small Steel Wheels tool to show KiwiRail’s to our customers and stakeholders amounts of energy, which provides contribution to the sustainable operation to assist them in making sustainable economic and environmental benefits of New Zealand’s logistics sector. The choices around logistics providers. for users of the rail network.

STEEL WHEELS FY2016 Your partner in sustainable freight

CO2 4.5b = 1.1m + 76.7m + 208,613

Net Tonne Reduced heavy vehicle Fuel savings (L) CO2 emission Kilometres (NTK’s) road impact savings (T)

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 37 Capitals review: Environmental

A whio in Tongariro National Park Protecting our Reducing energy environment consumption We are continuing to work with KiwiRail is working to improve the stakeholders on ways to minimise the sustainability of our operations, with a environmental impact of our operations. continued focus on energy savings. The Makatote Viaduct upgrade is We have begun a fuel–conservation a good example of environmental programme that aims to reduce benefits that can be achieved through consumption and improve efficiency stakeholder collaboration. across our locomotive fleet. The The viaduct is located in Tongariro initiative involves a combination National Park and is home to a resident of improved asset planning and population of vulnerable New Zealand deployment, new operational whio, or native blue ducks. procedures, staff training and technology. KiwiRail has worked closely with iwi, the Department of Conservation KiwiRail is also working to improve (DoC), Heritage New Zealand and energy performance at our sites. local councils to ensure the unique For example, we have reduced the environment and the historical integrity energy consumption of lighting at our of the viaduct are preserved, while Westfield depot in Auckland by 56%, we complete a major upgrade of the thanks to the installation of 2300 light– structure later this year, including emitting diode (LED) bulbs. We will removal of old lead–based paint. rollout LEDs to several high energy use sites over the next 12 months.

38 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Case Study: Delivering cost and energy savings

Delivering cost and energy savings Case Study

KiwiRail’s award–winning Driver Advisory System (DAS) has achieved Tina Flack, Locomotive Engineer using the driver a 6% fuel saving in its first full year of operation ending February 2016 advisory system – a saving of 3.2 million litres of diesel, which avoided 8,800 tonnes of greenhouse gas emissions and substantial fuel costs. DAS incorporates the energy–saving project, which includes the rollout of Energymiser® system and is part of DAS. a comprehensive fuel conservation KiwiRail’s National Service Delivery programme that will reduce emissions Manager Soren Low says the locomotive and locomotive wear through less fuel conservation project is a success for braking and smoother acceleration. the entire business. DAS provides Locomotive Engineers “Ultimately the success of the project with a driving guide that ensures fuel use came down to our asset servicing at optimal levels for the journey, while teams and locomotive engineers buying Energymiser® works by using the laws into and using the new processes and of physics to develop an ideal driving technology. Having people in the frontline scenario for routes. that are committed to the outcome, along In August 2016, KiwiRail won the “Large with a team of practising locomotive Energy User Initiative of the Year” at engineers who ‘walk the talk’ delivering the Deloitte Energy Excellence Awards the training, was a significant influence for the Locomotive Fuel Conservation on our success.”

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 39 Capitals review: Outlook

KiwiRail has been gradually reducing the carbon intensity of freight services over the past few years.

40 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Capitals review: Outlook

Outlook What challenges and opportunities is the organisation likely to encounter? What are the potential implications for the business model and future performance?

KiwiRail is confident it has the right in the port sector. The company is self–drive, electric trucks appearing strategies in place to maintain actively partnering with freight hubs and on our roads, while smaller companies momentum towards a commercially will continue investing in new rolling will begin to enter the freight transport strong and sustainable business that stock and multimodal assets to improve sector thanks to lower entry costs. moves people and freight more cost ease of movement between road, rail KiwiRail is keeping a close eye on all effectively than any other carrier. and ships. these developments, while embracing and investing in technology and IT Our three–part strategy to simplify our systems to improve operational and business, standardise our assets and Auckland resilience safety performance. The company will invest in our people is enabling the The significant growth in both freight continue trialling various technologies business to successfully navigate the and commuter services on the Auckland such as our battery–powered electric– various challenges it faces into the rail network is putting pressure on shunt locomotive. Technology–enabled future. the operational and infrastructure innovation will be critical to KiwiRail’s resilience. Ultimately, as this growth Those challenges include volatile success in the years ahead. continues, the separation of Freight and commodity markets, supply chain Passenger networks will be required. consolidation, demographic and This will require an integrated and New emission targets technological change, and increasing comprehensive response from all Meeting the Government’s commitment environmental pressures. stakeholders. KiwiRail is engaged with to reduce emissions by 30% by 2030 Auckland Transport, New Zealand will require a contribution from all Commodity market Transport Agency and government sectors including transport which makes volatility representatives to ensure the needs of up 17% of all emissions. Rail produces Freight and Passenger customers are a very small proportion of all transport Domestic and import/export (IMEX) met. emissions (less than 2%) and is already sectors are forecast to grow, while the saving emissions by diverting freight outlook for key commodities such as from road. Through improvements in coal, forestry and milk–based products Workforce planning fuel efficiency and increases in freight is not as buoyant. In response, KiwiRail KiwiRail will need to prepare for the volumes, rail has been gradually is focusing on non–commodity driven rapidly changing logistics industry and reducing the carbon intensity (emissions activities where we have the greatest increasing customer and shareholder per net tonne kilometre) of freight degree of influence on market share. expectations. This will involve workers services. Continuous improvement This includes the domestic freight in planning for such changes as well in these areas will be critical as new market, where service reliability will help as expanding their transferrable skills emission targets place a greater focus to unlock more growth. to prepare for different roles in the on carbon. future. The company will also work to Supply chain consolidation attract new and diverse talent and skills that enable it to keep innovating and The expected arrival of larger container succeeding well into the 21st Century. ships to New Zealand and the population growth and drift northwards is already changing freight flows and Technology supply chains. Ports are investing Along with the need to manage an in rail–served infrastructure outside ageing workforce, KiwiRail is also the port gate and in closer proximity facing technological challenges and to where the population growth is opportunities, ranging from automation, occurring. With the ability to aggregate artificial intelligence, big data, GPS and move large volumes of freight at tracking, and electric vehicles, to large– speed, KiwiRail is perfectly positioned to scale disruptions of an entire industry. take advantage of these developments In the near future, we expect to see

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 41 Governance review: The KiwiRail Board

The KiwiRail Board

John Spencer CNZM Dame Paula Rebstock John Leuchars

Dr Kevin Thompson Guy Royal Rebecca Thomas

Mike Pohio Paul Harper

42 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Governance review: The KiwiRail Board

John Spencer CNZM Dr Kevin Thompson Mike Pohio Chairman Director Director John Spencer joined the Board in 2010 Kevin Thompson joined the Board in Mike Pohio joined the Board in May as Chairman. 2011. 2016. John is a Wellington–based Kevin is a Nelson–based professional A qualified Chartered Accountant, businessman and company director. director and civil engineer. He is Deputy Mike has extensive experience both He is the Chairman of the Tertiary Chair of the Environmental Protection as a Director and an Executive. Mike Education Commission, Raukawa Authority and chairs the Agency’s currently chairs BNZ Partners, Waikato Iwi Developments Ltd and Waikato HSNO Committee. Kevin has previously Region and is a Director of NIWA, Regional Airport Ltd. John is also a served as Chief Executive of Opus Panuku Development Auckland and Te director of Mitre 10 NZ Ltd. International Consultants Ltd and Chief Atiawa Iwi Holdings. He has also held John has held a number of senior Executive of Works Civil Construction. a number of executive roles in the NZ management positions in New Zealand He is a Distinguished Fellow and a Dairy industry and was CEO of Tainui and Australia, including Chief Executive past president of the Institution of Group Holdings (TGH). Mike is a former of NZ Dairy Group – one of the two Professional Engineers New Zealand. shareholder and director of NZL Group dairy companies that merged to form Ltd, and was a Ministerial appointment Fonterra. Guy Royal to the University of Waikato Council. Director Dame Paula Rebstock Guy Royal joined the Board in 2013. Paul Harper Deputy Chair Guy has a background in private Director Dame Paula Rebstock joined the Board equity and commercial and corporate Paul Harper joined the KiwiRail Board in in 2009. law for more than 20 years in New May 2016. Dame Paula is an Auckland–based Zealand, Hong Kong, Vietnam and the Paul is a non–executive director economist and company director. She is United Kingdom. He is an executive and Chair of Netlogix Ltd and holds Chair of the ACC Board, Insurance and director of Tuia Group, a professional directorships with the Boards of Health Savings Ombudsman Commission, and advisory firm. He also holds or has Benefits and Health Alliance. His the Vulnerable Children’s Board. Dame held directorships on various Boards in previous roles include directorships at Paula is also a member of the University the property, forestry and technology Port Napier, CHH Northport, Cyberlynx of Auckland Business School Advisory investment sectors. and Clifford Bay, together with various Board, a member of the Synergia senior management roles at Carter Limited Advisory Board and a director Rebecca Thomas Holt Harvey and Interisland Line. Paul of Auckland Transport. Her other roles Director is the immediate past Dean of the New include the Lead Reviewer for the State Rebecca Thomas joined the Board in Zealand Maritime School and Manukau Services Commission Performance 2011. Institute of Technology Centre for Improvement Framework. Rebecca has more than 29 years’ Logistics. experience in financial markets in John Leuchars New Zealand and overseas. She has Director a background in law and business John Leuchars joined the Board in having held roles as both a CEO and 2010. Independent Director on UK–based John is a professional company director Boards. She is Chair of the Audit, and civil engineer. He is currently a Finance and Risk Committee of the director of Genesis Energy Limited, Financial Markets Authority (FMA), a Where a date for appointment to the The Wellington Gateway General director of Mint Asset Management Ltd Board precedes 1 January 2013, it is a Partnership Companies Nos.1 and 2 and a director of Black and White Group reference to the date that the Director (Transmission Gully motorway) and Ltd. Rebecca is also an associate was appointed to the Board of the Milmeq Ltd. member of the Foundation Board of the New Zealand Railways Corporation John has also held director and Financial Markets Authority. (NZRC), the former parent of the managing director positions in Group. Following a restructure of the international consulting engineering Crown’s rail interests in 2012/13 in companies. These include Managing which the majority of NZRC’s rail assets Director of Connell Wagner (NZ) and liabilities were vested in KiwiRail Limited (now Aurecon) and Connell Holdings Limited, the then Directors of Mott MacDonald in London. He is also NZRC were appointed to the Board of a fellow of the Institute of Professional KiwiRail Holdings Limited as the new Engineers NZ. parent company for the Group.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 43 Governance review: The KiwiRail Executive Team

The KiwiRail Executive Team

Peter Reidy Kate Jorgensen Iain Hill

Todd Moyle Alan Piper David Gordon

Andrew Norton Huw Bridges Roy Sullivan

44 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Governance review: The KiwiRail Executive Team

Peter Reidy Alan Piper Huw Bridges Chief Executive Group General Manager Sales and Group General Manager Zero Harm Peter joined KiwiRail as Chief Executive Commercial Huw joined KiwiRail in 2016 and is in March 2014. He brings to KiwiRail Alan joined KiwiRail in September responsible for health and safety. Prior a successful track record of building 2013 and is responsible for the freight, to joining KiwiRail, Huw was General and leading service and infrastructure– commercial vehicles and passenger Manager – Safety and Assurance based businesses in the logistics, revenue portfolios. This includes for Transdev in Auckland. Huw has energy, building products and asset marketing, pricing and sales planning a wealth of operational and strategic management sectors in New Zealand, to improve margin and revenue. He rail safety experience earned during a Australia, Asia and the United Kingdom. previously worked in freight and logistics successful 30 year career. He has held Prior to KiwiRail, Peter held a number sales and general management roles roles with a number of rail, light rail and of senior leadership roles with Downer with CourierPost and Pace Couriers bus businesses in the UK and Europe Group, Fletcher Building, Todd Energy and had a successful 23–year career including major players such as First and Freightways. with the Bank of New Zealand in retail Group, National Express Group and as banking and branch strategy. the Head of Safety for Eurostar UK. Kate Jorgensen Chief Financial Officer David Gordon Roy Sullivan Kate joined KiwiRail in March 2015. Group General Manager Asset Group General Manager Rolling She is a strategic CFO who partners Management and Investment Stock and Asset Services with the business to drive results. Prior David joined KiwiRail in 2007 when Roy joined KiwiRail in 2016 and is to KiwiRail, Kate worked for Fletcher he began working on the Wellington responsible for KiwiRail’s Wellington– Building for six years, where she Regional Rail Programme as the Project based fleet mechanical engineering held several senior commercial roles, Director. In his current role David is teams, the Auckland–based locomotive including Divisional CFO for Heavy responsible for asset integrity and long– and wagon asset teams and the Building Products and Divisional CFO term viability. company’s Northern, Central, Southern for the Infrastructure Products Division. He previously worked as a consultant and Hutt field maintenance service in the transport infrastructure business teams. Roy has more than 30 years Iain Hill for organisations such as Wellington rolling stock asset maintenance and Group General Manager Operations International Airport. manufacturing experience with UK– Iain joined KiwiRail in October 2009 as based Alstom Transport and more recently Downer Rail Australia. General Manager Freight. In his current Andrew Norton role Iain is responsible for rail freight, Group General Manager Human ferry operations, rail freight terminal Resources and container terminal operations, ferry Andrew joined KiwiRail in June 2014 terminals, crew–scheduling, rolling and has extensive experience in stock and mechanical and maintenance. Human Resources and Industrial Prior to joining KiwiRail Iain worked for Relations in both large public and 15 years at Express Couriers Limited, commercial organisations. Andrew has where he held various General Manager an in–depth understanding of Industrial roles including GM Logistics and Relations, strong engagement skills Distribution. with front line engineering and customer service teams, and experience in Todd Moyle developing Executive leadership in Group General Manager Network large organisations. He previously held Services high–level roles with Public Service Todd joined KiwiRail in February Association (PSA) NZ, Auckland District 2007 and is responsible for the Health Board and worked as Downer delivery of infrastructure maintenance Australia’s Executive General Manager and renewals, inventory and plant Human Resources. management, contractor management and leadership development. Before moving into his current role, Todd worked as KiwiRail’s Southern Development Manager and Southern Regional Manager – Infrastructure. He also worked for London Underground in the United Kingdom.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 45 Governance review: How we are governed

Our commercial Governance functions The Board meets 11 times during the year as part of the regular meeting mandate The Board of Directors of KiwiRail is agenda. In addition, there are four appointed by the Shareholding Ministers KiwiRail Holdings Limited is a limited committees of the Board which meet and is accountable to the Shareholding liability company incorporated under four times a year. These committees are Ministers for the performance of the Companies Act 1993 and a state described further below. KiwiRail. The Shareholding Ministers owned enterprise (SOE) under the State may jointly remove directors at any time The Board is committed to ensuring that Owned Enterprises Act 1986. and entirely at their discretion. the Shareholding Ministers are informed As an SOE, all of KiwiRail’s shares are of all major issues and developments The role of the Board is to guide the owned by the Crown. They are held affecting the company. Such information strategic direction of KiwiRail and to in equal proportions by the Minister is communicated in various ways direct and oversee management. of Finance and the Minister for State including Annual/Integrated reports, half yearly reports and continuous disclosure Owned Enterprises. The Board establishes objectives statements. and sets strategies to achieve those The principal objective of every SOE objectives. The Board, in the context is to operate as a successful business of the approved policy, risk and and, to this end, to be as profitable and compliance framework within which efficient as comparable businesses that the Group operates, monitors the are not owned by the Crown. SOEs are performance of management and the also required to be good employers Group against those strategies. The and to exhibit a sense of social Board has delegated the day–to–day responsibility. management of the Group to the Chief Executive.

Committee structures

Audit, Finance and Risk Safety, Health and Human Infrastructure & Asset Remuneration Committee (AFRC) Resources Committee Management Committee Committee (SHREC)

Four meetings per year Four meetings per year Four meetings per year Four meetings per year

Dame Paula Rebstock Guy Royal (Committee John Leuchars (Committee John Spencer (Committee (acting Committee Chair) Chair) Chair) Chair) Rebecca Thomas Dr Kevin Thompson Dr Kevin Thompson Dame Paula Rebstock John Spencer Paul Harper Paul Harper Guy Royal Guy Royal Mike Pohio Mike Pohio

Assists the Board with Advises the Board on Advises the Board on Assists the Board in the discharge of its compliance with all safety the performance and establishing remuneration responsibilities in relation licenses, the Health & Safety management of, and risks strategies and policies for to audit, finance and at Work Act, and legal safety associated with KiwiRail’s the Chief Executive and his risk management. The requirements including material assets. direct reports that support an committee monitors the effective systems, training, increase in productivity and roles, responsibilities and resources and processes the retention of staff performance of management for the protection of workers and the auditors in financial and others who interact with reporting, business risk KiwiRail. The committee is management systems and also responsible for human internal control systems. resources and environment oversight.

46 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Governance review: How we are governed

In addition to these committees of the organisation. This Strategy is based KiwiRail has insured the directors and Board, the Board has established an on principles that are industry best employees of the Group against any advisory committee of senior external practice and the National Rail Systems costs or liabilities of the type referred to consultants to advise the Board and Standard 4 (NRSS), which is aligned in section 162(5) of the Companies Act. management on KiwiRail’s property to the international standard for Risk In addition, KiwiRail indemnifies strategy and planning. This Property Management: AS/NZS ISO31000:2009. directors of its wholly–owned Committee is chaired by a KiwiRail At a strategic level, effective governance subsidiaries against any costs or director (John Leuchars) and the three of risk is achieved through the Audit, liabilities of the type referred to in other members are experienced leaders Finance and Risk Committee of the section 162(5) of the Companies Act. and professionals in the property Board. At an operational level, a risk industry but are not members of the champion network is in place, and risk is KiwiRail Board. actively managed and reported through Approach to Risk an enterprise risk register. Management Insurance and Indemnity KiwiRail is committed to ensuring In accordance with the Companies Act that risk management is an important 1993 and the terms of its constitution, element and integral part of the way KiwiRail indemnifies the members of the we undertake our operations. We Board in respect of liability for conduct take an enterprise–wide approach that comprises acts or omissions by to risk management, and consider the directors in good faith and in the the potential impact of risks on our performance or intended performance processes, activities, stakeholders, of KiwiRail’s functions and for any costs products and services. An Enterprise incurred in defending or settling any Risk Management Strategy has been claim or proceeding related to liability for developed and implemented across the such conduct.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 47 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Statement of Comprehensive Income For the financial year ended 30 June 2016

GROUP GROUP Note 2016 2015

$m $m

Operating revenues 2 694.0 720.6

Operating expenses 3(a) (618.1) (630.1)

Operating surplus 75.9 90.5

Capital grants 4 32.9 44.6

Depreciation and amortisation expenses 5 (67.5) (68.8)

Foreign exchange and commodity (losses) and gains 6 (5.0) 7.2

Net finance expenses 7 (14.3) (17.8)

Impairment 9(c) (216.3) (224.7)

Movement in value of investment properties 14 (0.1) 1.7

Other income – 0.8

Share in profit of joint venture 16 0.4 –

Net deficit before taxation (194.0) (166.5)

Income tax (expense)/credit 8 – –

Net deficit after taxation (194.0) (166.5)

Other comprehensive income/(loss)

Items that can be reclassified into net surplus or deficit:

(Losses)/gains from cash flow hedges (0.4) 1.5

Items that cannot be reclassified into net surplus or deficit:

Transfer to asset carrying value from cash flow hedge reserve – 0.1

Building impairment 9(c) – (3.1)

Total comprehensive loss (194.4) (168.0)

The accompanying notes form part of these financial statements.

48 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Statement of Financial Position As at 30 June 2016

GROUP GROUP Note 2016 2015

$m $m Current assets Cash and cash equivalents 10 96.5 50.0 Trade and other receivables 11 87.4 87.6 Inventories 12 63.1 56.5 Financial assets 13 0.2 6.5 Assets held for sale – 2.1 247.2 202.7 Non–current assets Property, plant and equipment 9(a) 676.3 675.9 Investment property 14 68.7 67.6 Intangible assets 9(b) 0.8 0.6 Financial assets 13 – 0.2 Investment in joint venture 16 2.0 1.6 747.8 745.9 Total assets 995.0 948.6 Current liabilities Trade and other liabilities 17 94.6 87.6 Employee entitlements 18 61.0 62.9 Financial liabilities 13 10.2 31.6 Income taxes payable 8 – – Provisions 19 6.6 4.7 172.4 186.8 Non–current liabilities Employee entitlements 18 38.0 35.0 Financial liabilities 13 224.8 201.7 Provisions 19 5.9 4.7 268.7 241.4 Total liabilities 441.1 428.2 Net assets 553.9 520.4 Equity Share capital 24 613.6 403.8 Retained earnings (81.7) 94.2 Asset revaluation reserve 22.6 22.6 Cash flow hedge reserve (0.6) (0.2) Total equity 553.9 520.4

John Spencer Dame Paula Rebstock Chairman Deputy Chair 26 August 2016 26 August 2016

The accompanying notes form part of these financial statements.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 49 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Statement of Movements in Equity For the financial year ended 30 June 2016

Asset Cash Flow Share Retained GROUP Revaluation Hedge Total Capital Earnings Reserve Reserve

$m $m $m $m $m

As at 30 June 2014 205.8 235.4 37.6 (1.8) 477.0

Net deficit for the period – (166.5) – – (166.5)

Other comprehensive income/(loss)

Gains from cash flow hedges – – – 1.5 1.5

Transfer to asset carrying value from cash flow hedge – – – 0.1 0.1 reserve Buildings impairment charged to asset revaluation – – (3.1) – (3.1) reserve Revaluation reserve of transferred property, plant and – 11.9 (11.9) – – equipment

Total comprehensive income/(loss) – (154.6) (15.0) 1.6 (168.0)

Transactions with owners

Capital investment 198.0 – – – 198.0

Crown appropriation on land transactions – 13.4 – – 13.4

As at 30 June 2015 403.8 94.2 22.6 (0.2) 520.4

Net deficit for the period – (194.0) – – (194.0)

Other comprehensive income/(loss)

Losses from cash flow hedges – – – (0.4) (0.4)

Total comprehensive (loss) – (194.0) – (0.4) (194.4)

Transactions with owners

Capital investment 209.8 – – – 209.8

Crown appropriation on land transactions (note 20) – 18.1 – – 18.1

As at 30 June 2016 613.6 (81.7) 22.6 (0.6) 553.9

The accompanying notes form part of these financial statements.

50 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Statement of Cash Flows For the financial year ended 30 June 2016

GROUP GROUP Note 2016 2015

$m $m

Cash flows from operating activities

Receipts from customers 698.9 726.6

Interest received 2.9 3.4

Payments to suppliers and employees (609.8) (642.7)

Interest expense (13.7) (15.5)

Net cash from operating activities 22 78.3 71.8

Cash flows from investing activities

Sale of property, plant and equipment 3.5 4.5

Capital grant receipts 32.9 44.6

Purchase of property, plant and equipment and investment properties (285.2) (280.5)

Purchase of intangibles (5.9) (13.2)

Net cash used in investing activities (254.7) (244.6)

Cash flows from financing activities

Crown capital investment 209.8 198.0

Increase in equity from NZRC land sales 20 18.1 13.4

Loans 24.6 1.6

Repayment of borrowings (28.3) (4.0)

Repayment of finance lease liability (1.3) (1.6)

Net cash from financing activities 222.9 207.4

Net increase in cash and cash equivalents 46.5 34.6

Cash and cash equivalents at the beginning of the year 50.0 15.4

Cash and cash equivalents at the end of the year 10 96.5 50.0

The accompanying notes form part of these financial statements.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 51 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

1. GROUP INFORMATION

(a) Reporting entity KiwiRail Holdings Limited (“KHL”, “the Parent”) is a company domiciled in New Zealand, registered under the Companies Act 1993 and is included within the First Schedule of the State Owned Enterprises Act 1986. The beneficial shareholder of the Parent is the Crown. The Group comprises KiwiRail Holdings Limited and its subsidiaries as detailed in the below diagram:

KiwiRail Holdings Limited Joint Northland Regional Council Arrangement 100%

KiwiRail Limited

25% 100%

Clifford Bay Metrobox Limited (non– Limited trading)

The following activities are required to be carried out by the Group:

• Provide end–to–end transport supply chain services and connect customers with global markets • Own and operate a national rail network which meets the needs of our customers • Provide for the transport of bulk and consolidated freight • Provide ferry services (forming the ‘bridge’ between the North and South Islands) for rail and road freight and for passengers and their vehicles • Support rail passenger services in metropolitan areas and long distance services for both domestic and tourist markets • Manage and develop property holdings for rail operations and appropriate third–party land use

The financial statements of the Group are for the year ended 30 June 2016 and were authorised for issue by the Board of Directors on 26 August 2016.

(b) Basis of preparation The financial statements have been prepared in accordance with New Zealand GenerallyAccepted Accounting Practice (“NZ GAAP”). They comply with New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”) as appropriate for for–profit entities and other applicable Financial Reporting Standards.They comply with the State–Owned Enterprises Act of 1986, the requirements of the Companies Act 1993 and the Financial Reporting Act 2013. The financial statements have been prepared on the basis of historical cost, except for certain non–financial assets and derivative financial instruments, which have been valued at fair value.

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

Unless otherwise specified, all dollar amounts in these financial statements and accompanying notes are stated in New Zealand dollars and all values are expressed in millions of dollars ($m). The functional and presentation currency is New Zealand dollars.

52 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

(c) Consolidated financial statements The consolidated financial statements of the Parent and its subsidiaries include the financial statements of subsidiary companies using the acquisition method of consolidation. The acquisition method of consolidation involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non–controlling interest in the acquiree.

Subsidiary companies are those entities that are controlled directly or indirectly by the Parent.

(d) Standards and interpretations issued but not yet in effect NZ IFRS standards and interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2016. Significant changes are outlined below:

• IFRS 16 Leases requires lessees to account for all leases under a single on–balance sheet model in a similar way to finance leases under NZ IAS 17. These changes are effective for periods beginning on or after 1 January 2019. The Group is yet to assess the full impact of this standard. • NZ IFRS 9 Financial Instruments is the standard issued as part of IASB’s project to replace NZ IAS 39. The changes to IFRS 9 are effective for periods beginning on or after 1 January 2018 and are not expected to have material impact on the Group.

(e) Comparatives The presentation of some information has changed from the previous period with prior period balances re–classified to be comparable with current year figures.

(f) Significant accounting judgements, estimates and assumptions The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenues and expenses. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

Management’s significant judgements, estimates and assumptions are outlined in the relevant notes to the financial statements.

(g) Going concern KiwiRail continues to operate on a commercial basis. Shareholder support to date has been provided in line with KiwiRail’s business plans, with $190m of equity funding confirmed for proposed investments in the 2016/17 financial year.

The latest business plan assumes additional equity funding for a number of years and future equity funding will be confirmed. eW have completed these financial statements on a going concern basis on the assumption that shareholder support will continue, largely in line with business plans.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 53 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

2. REVENUE

GROUP GROUP 2016 2015

$m $m Freight 389.8 433.7 Interislander 127.6 127.3 Tranz Metro 59.7 53.7 Scenic Journeys 29.7 24.8 Property and Corporate 44.5 43.2 Infrastructure and Asset Management 42.7 37.9 Total revenue 694.0 720.6

Revenue recognition Revenue is measured at the fair value of the consideration received or receivable by the Group to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue represents amounts receivable for goods and services provided in the normal course of business once significant risks and rewards of ownership have been transferred to the buyer. Revenue is recognised by reference to the stage of completion of the contract activity at the balance date.

3(a). OPERATING EXPENSES

GROUP GROUP 2016 2015

$m $m Salaries and wages 339.9 341.8 Restructuring 8.7 1.0 Defined contribution plan employer contributions 11.6 11.7 Other employee expenses 0.4 3.6 Total staff costs 360.6 358.1 Amounts capitalised (44.0) (51.3) Net staff costs 316.6 306.8 Materials and supplies 119.2 112.2 Fuel and traction electricity 66.7 92.9 Lease and rental costs 49.2 42.8 Incidents and insurance 13.5 13.1 Contractors expenses 9.0 12.7 Audit fees 0.4 0.4 Impairment/(Recovery from impairment) of receivables 0.3 (2.2) Directors’ fees 0.3 0.3 Gain on disposal of property, plant and equipment (1.0) (1.7) Other expenses 43.9 52.8 Total operating expenses 618.1 630.1

54 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

3(b). SIGNIFICANT ITEMS

Included within operating expenses note 3(a) are the following significant items:

GROUP GROUP 2016 2015

$m $m Restructuring 8.7 – Other 0.9 – Total significant items 9.6 –

4. CAPITAL GRANTS

GROUP GROUP 2016 2015

$m $m Capital grants (Ministry of Transport funded) 13.2 31.2 Other capital grants 19.7 13.4 Total capital grant income 32.9 44.6

The Group receives grants from Government entities for the purpose of maintaining the railway networks and infrastructure.

Where the asset being funded is depreciated over its useful life, the funding is recognised as income on a straight line basis over the same life. Grants received for services provided are recognised when the requirements of the relevant grant agreement are met. Funding received as reimbursements for capital projects are recognised in the same period as the expenditure to which it relates.

5. DEPRECIATION AND AMORTISATION EXPENSES

GROUP GROUP Note 2016 2015

$m $m Depreciation expense 9(a) 66.6 68.4 Amortisation expense 9(b) 0.9 0.4 Total depreciation and amortisation expenses 67.5 68.8

6. FOREIGN EXCHANGE AND COMMODITY GAINS AND LOSSES

GROUP GROUP 2016 2015

$m $m Net realised foreign exchange and commodity gains 4.2 1.0 Net change in the fair value of derivatives not designated as cash flow hedges (9.2) 6.2 Total foreign exchange (losses) and gains (5.0) 7.2

The table above excludes foreign exchange and commodity gains and losses on fuel related contracts of $3.3m (2015: $2.5m) which are reported within ‘Fuel and Traction Electricity Expenses’ in note 3(a).

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 55 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

6. FOREIGN EXCHANGE AND COMMODITY GAINS AND LOSSES (continued)

Foreign currency translation Foreign currency transactions are translated to New Zealand currency at the exchange rates ruling at the transaction date.

Monetary assets and liabilities in foreign currencies at balance date are translated at exchange rates ruling at balance date. All exchange differences arising on the translation of monetary assets and liabilities in foreign currencies, whether realised or unrealised, are recognised in net surplus or deficit, except when deferred in equity as qualifying cash flow hedges.

Non–monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non–monetary items in a foreign currency that are measured based on historical costs are translated using the exchange rate at the date of the transaction.

7. NET FINANCE EXPENSES

GROUP GROUP 2016 2015

$m $m Finance income Interest income on bank deposits 2.9 3.3 2.9 3.3 Less finance expenses Interest expense on borrowings (13.3) (14.9) Interest expense on finance lease (0.5) (0.8) Net change in fair value of interest rate swaps (3.4) (5.4) (17.2) (21.1) Net finance expenses (14.3) (17.8)

Finance income and expenses Interest income from call and term deposits and interest expense on borrowings are recognised in net surplus or deficit using the effective interest rate method. Interest income is recognised as it accrues.

8. TAXATION

Income tax All members of the Group are subject to income tax. The accounting policies applied are as follows:

Income tax expense comprises both current and deferred tax. Income tax expense is charged or credited to net surplus or deficit, except when it relates to items charged or credited directly to equity, in which case the tax is charged to equity.

(a) Current tax

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at reporting date and any adjustments to tax in respect of previous years.

56 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

8. TAXATION (continued)

(b) Deferred tax

Deferred tax is provided for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the carrying amounts used for taxation purposes. No deferred tax asset is recognised in the financial statements as it is not probable that future taxable surpluses will be available against which the asset can be utilised.

(c) Tax benefit/ (expense)

GROUP GROUP 2016 2015

$m $m Components of tax expense Current tax expense – – Deferred tax expense – – Tax benefit/(expense) – – Reconciliation between tax expense and accounting surplus Deficit before tax (194.0) (166.5) Tax at 28% (54.0) (46.6) Tax effect of: Non–deductible expenditure 0.4 0.2 Other temporary differences 53.6 46.4 Tax benefit/(expense) – –

The Group has an unrecognised deferred tax asset of $835.7m (2015: $787.4m) arising from deductible temporary differences of $2,264.5m (2015: $2,304.7m) and unused tax losses of $720.1m (2015: $507.4m).

Imputation credits The Group has formed an imputation Group. The Group has access to $1.2m imputation credits (2015: $1.2m imputation credits).

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 57 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

9. NON–FINANCIAL ASSETS (a) Property, plant and equipment

Railway Rolling Plant & Assets Under Land Buildings Ships Total 2016 Infrastructure Stock Equipment Construction

Cost $m $m $m $m $m $m $m $m Balance at 1 July 2015 3.1 48.7 111.7 316.6 114.1 199.1 52.0 845.3 Additions – 6.8 77.0 64.7 24.5 13.0 91.9 277.9 Disposals – – – (1.1) – (1.0) – (2.1) Category transfers – – 0.6 – 0.1 – 0.3 1.0 Impairment – – (80.3) (41.8) – – (105.0) (227.1) Balance at 30 June 2016 3.1 55.5 109.0 338.4 138.7 211.1 39.2 895.0

Accumulated depreciation Balance at 1 July 2015 – 3.1 – 52.8 32.8 80.7 – 169.4 Depreciation expense – 3.0 4.4 34.0 10.7 14.5 – 66.6 Disposals – – – (0.9) – (0.8) – (1.7) Category transfers – – – – – – – – Impairment – – (4.4) (11.2) – – – (15.6) Balance at 30 June 2016 – 6.1 – 74.7 43.5 94.4 – 218.7 Net book value At 1 July 2015 3.1 45.6 111.7 263.8 81.3 118.4 52.0 675.9 At 30 June 2016 3.1 49.4 109.0 263.7 95.2 116.7 39.2 676.3

Railway Plant & Assets Under Land Buildings Rolling Stock Ships Total 2015 Infrastructure Equipment Construction

Cost Balance at 1 July 2014 – 78.9 117.7 294.1 126.4 189.3 34.6 841.0 Additions 0.1 2.8 116.7 41.8 1.7 10.3 98.7 272.1 Disposals – (0.2) – (1.8) – (0.5) – (2.5) Category transfers 3.0 (26.9) 0.3 – (2.0) – 2.7 (22.9) Impairment – (5.9) (123.0) (17.5) (12.0) – (84.0) (242.4) Balance at 30 June 2015 3.1 48.7 111.7 316.6 114.1 199.1 52.0 845.3 Accumulated depreciation Balance at 1 July 2014 – 0.6 – 29.9 33.5 66.6 – 130.6 Depreciation expense – 4.6 9.0 31.0 9.3 14.5 – 68.4 Disposals – – – (1.1) – (0.4) – (1.5) Category transfers – (1.6) – – – – – (1.6) Impairment – (0.5) (9.0) (7.0) (10.0) – – (26.5) Balance at 30 June 2015 – 3.1 – 52.8 32.8 80.7 – 169.4 Net book value At 1 July 2014 – 78.3 117.7 264.2 92.9 122.7 34.6 710.4 At 30 June 2015 3.1 45.6 111.7 263.8 81.3 118.4 52.0 675.9

58 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

9. NON–FINANCIAL ASSETS (continued)

(a) Property, plant and equipment (continued) (i) Recognition and Measurement Property, plant and equipment is shown at cost or valuation, less any accumulated depreciation and accumulated impairment losses. Items of property, plant and equipment in the course of construction are classified as assets under construction. Cost includes expenditure that is directly attributable to the acquisition of the asset. Where an asset is acquired for nil or nominal consideration the asset is recognised initially at fair value, where fair value can be reliably determined; and the fair value of the asset received less costs incurred to acquire the asset is also recognised as income in net surplus or deficit. (ii) Revaluation Buildings are revalued with sufficient regularity to ensure that the carrying amount does not differ materially from fair value. Refer to Note 25(b)(ii) for the methodology used in the determination of fair value. Any revaluation increase arising on the revaluation of buildings is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense in net surplus or deficit, in which case the increase is credited to net surplus or deficit to the extent of the decrease previously charged.A decrease in carrying amount arising on the revaluation of land or buildings is charged as an expense to net surplus or deficit to the extent that it exceeds the balance, if any, held in the asset revaluation reserve relating to a previous revaluation of that asset. If buildings were stated on the historical cost basis, the amounts would be as follows:

Group Group 2016 2015

$m $m Cost 127.7 123.2 Accumulated depreciation (35.9) (32.4) Net carrying value 91.8 90.8

(iii) Derecognition Realised gains and losses arising from the derecognition of property, plant and equipment are recognised in net surplus or deficit in the period in which the transaction occurs. The gain or loss is calculated as the difference between the carrying amount of the asset and the net disposal proceeds received (if any). Any credit balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings. (iv) Depreciation Depreciation is charged on a straight line basis at rates that will allocate the cost or valuation of the asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter. In determining an asset’s useful life, consideration is given to its expected usage, its expected wear and tear, technical or commercial obsolescence, and legal or similar limits on its use.

The average depreciable lives for major categories of property, plant and equipment are as follows:

Category Useful life Category Useful life Railway Infrastructure Plant and Equipment Tunnels and bridges 75 – 200 years Plant and equipment 5 – 35 years Track and ballast 40 – 50 years Motor vehicles 5 – 12 years Overhead traction 20 – 80 years Furniture and fittings 5 – 12 years Signals and communications 15 – 50 years Office equipment 3 – 5 years Buildings 35 – 80 years Land is not depreciated. Rolling Stock and Ships Wagons and carriages 5 – 30 years Locomotives 5 – 25 years Ships 20 years Containers 10 years

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 59 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

9. NON–FINANCIAL ASSETS (continued)

(a) Property, plant and equipment (continued) Estimation of useful lives of assets The Group reviews the useful lives and residual values of its property, plant and equipment annually. Assessing the appropriateness of useful life and residual value estimates of property, plant and equipment requires the Group to consider a number of factors such as the physical condition of the asset, expected period of use and expected disposal proceeds from the future sale of the asset.

(v) Finance leases

Leases in which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Included within plant and equipment are assets acquired by way of a finance lease with a net book value of $15.0m (2015: $16.0m).

Assets held under finance leases are stated at cost less accumulated depreciation and impairment. Finance charges are recognised as finance expenses in net surplus or deficit. Further details of the lease term are provided in note 21(a).

(b) Intangible assets

GROUP GROUP Note 2016 2015

$m $m Opening balance 0.6 0.3 Additions 5.9 13.2 Amortisation 5 (0.9) (0.4) Impairment 9(c) (4.8) (12.5) Balance at 30 June 0.8 0.6

Intangible assets comprise software applications which have a finite useful life and are recorded at cost less accumulated amortisation and impairment losses. Intangible assets with a finite useful life are amortised on a straight–line basis over their estimated useful lives of 3 to 5 years.

(c) Impairment of non–financial assets Reconciliation of Impairment Movements to Net Surplus or Deficit

GROUP GROUP 2016 2015

$m $m

Impairment of Cash Generating Units (below) 216.3 223.2 Other – 1.5 Impairment in net surplus or deficit 216.3 224.7

(i) Impairment of Cash Generating Units (“CGUs”) The Group has three CGUs and management consider that the assets within them form the individual CGU:

• Rail CGU – non–leased buildings, railway infrastructure, rolling stock, plant and equipment and intangible assets; • Interislander – ships and related plant and equipment and intangible assets that relate to the Interislander business unit; and • Leased Buildings – includes all leased buildings recognised as investment property.

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

9. NON–FINANCIAL ASSETS (continued) (c) Impairment of non–financial assets (continued) The three CGUs are assessed for impairment at each reporting date.

The value in use for each CGU is the present value of expected future cash flows.The recoverable amount of a CGU is the higher of its value in use and its fair value less costs to sell. If the carrying amount exceeds the recoverable amount the asset is impaired and the carrying amount is written down to the recoverable amount. For revalued assets the impairment is treated as a revaluation decrease (see note 9(a)(ii) above). For assets not carried at a revalued amount, the total impairment is recognised in net surplus or deficit.

As at 30 June 2016 the Interislander and Leased Buildings CGUs recoverable amount exceeds the carrying amount and no impairment is recognised. As at 30 June 2016 the recoverable amount of the Rail CGU does not exceed the carrying amount and an impairment has been recognised. We have determined the recoverable amount of the Rail CGU to be fair value less costs to sell. The impairment is allocated across each asset class within the CGU, including intangible assets.

• In determining the fair value less cost to sell of the railway infrastructure assets and rolling stock within the Rail CGU, the Group adopted a market approach assuming an orderly liquidation of the assets to arrive at a net realisable or scrap value. • The higher of the scrap value or the net realisable value is adopted to determine the individual asset’s fair value less cost to sell. • Market values such as steel prices and scrap metal rates are taken into account in determining the asset’s fair value. • For assets where scrap value is lower than the cost of removal the assigned fair value less cost to sell was set to nil. • Where assets have a readily determinable market value they have been impaired to this value. Where a market value is not able to be determined the assets have been impaired to their share of the calculated value in use for the CGU. • Market values have been provided by an independent valuer for buildings based on the most recent valuation. • Market values for all railway infrastructure and rolling stock were calculated with reference to external index data as at 30 June 2016.

The following impairments and revaluation movements have been recorded in relation to the Rail CGU:

Impairment 2016 Carrying Impairment recognised Carrying amount before recognised in GROUP 2016 in Asset amount after revaluation and net surplus or Revaluation impairment impairment deficit Reserve

$m $m $m $m Rail CGU Buildings 49.0 – – 49.0 Railway infrastructure 184.9 (75.9) – 109.0 Rolling stock 294.3 (30.6) – 263.7 Plant and equipment 110.4 – – 110.4 Assets under construction 141.9 (105.0) – 36.9 Total property, plant and equipment 780.5 (211.5) – 569.0 Intangible assets 4.8 (4.8) – – Total Rail CGU 785.3 (216.3) – 569.0

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

9. NON–FINANCIAL ASSETS (continued)

(c) Impairment of non–financial assets (continued)

Movement 2015 Carrying Impairment recognised Carrying GROUP 2015 amount before recognised in in Asset amount after revaluation and net surplus or Revaluation impairment impairment deficit Reserve

$m $m $m $m Rail CGU Buildings 50.9 (2.2) (3.1) 45.6 Railway infrastructure 225.7 (114.0) – 111.7 Rolling stock 274.3 (10.5) – 263.8 Plant and equipment 112.0 – – 112.0 Assets under construction 129.8 (84.0) – 45.8 Total property, plant and equipment 792.7 (210.7) (3.1) 578.9 Intangible assets 12.5 (12.5) – – Total Rail CGU 805.2 (223.2) (3.1) 578.9

10. CASH AND CASH EQUIVALENTS

GROUP GROUP 2016 2015

$m $m Current accounts (including cash on hand) 0.3 10.6 Call deposits 96.2 39.4 96.5 50.0

Cash and cash equivalents comprises cash on hand, call deposits and other investments with an initial term of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

11. TRADE AND OTHER RECEIVABLES

GROUP GROUP 2016 2015

$m $m Trade receivables 57.2 52.8 Accrued and other receivables: Prepayments 14.4 9.9 Related party receivables 3.5 7.3 Other 13.2 18.2 Gross receivables 88.3 88.2 Less provision for impairment (0.9) (0.6) 87.4 87.6 Current assets 87.4 87.6 Non–current assets – – 87.4 87.6

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

11. TRADE AND OTHER RECEIVABLES (continued)

Receivables (excluding prepayments) are financial assets classified as loans and receivables. Short–term receivables are recorded at their face value, less any provision for impairment.

Impairment Receivables are assessed for indicators of impairment at each balance date. Receivables are impaired where there is objective evidence that, as a result of one or more events that have occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been impacted. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the receivables is reduced through the use of a doubtful debt provision. When a trade receivable is uncollectible, it is written off against the doubtful debt provision. Subsequent recoveries of amounts previously written off are credited to net surplus or deficit. Changes in the carrying amount of the doubtful debt provision are recognised in net surplus or deficit.

All overdue receivables have been assessed for impairment at balance date and appropriate provisions applied, as detailed below:

2016 2015 Gross Impairment Net Gross Impairment Net

$m $m $m $m $m $m Not past due 41.1 – 41.1 45.0 – 45.0 Past due 1 – 30 days 7.3 – 7.3 2.2 – 2.2 Past due 31 – 60 days 1.7 – 1.7 1.4 (0.1) 1.3 Past due 61 – 90 days 1.6 – 1.6 0.8 (0.2) 0.6 Past due > 91 days 5.5 (0.9) 4.6 3.4 (0.3) 3.1 Total 57.2 (0.9) 56.3 52.8 (0.6) 52.2

The average credit period on sales of goods and services is 28.4 days (2015: 25.0 days).

12. INVENTORIES

GROUP GROUP 2016 2015

$m $m Operational Activities – Fuel 1.3 1.5 – Inventory held to maintain rail network 36.6 30.2 – Inventory held to maintain rolling stock and ships 34.9 36.0 Inventory held for resale 0.6 0.7 Contracting Activities – work in progress 0.4 0.4 Gross inventory 73.8 68.8 Less provision for stock obsolescence (10.7) (12.3) Net inventory 63.1 56.5

Inventory is recorded at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventory to its present condition and location. Cost is calculated using the weighted average method.

Write–downs or reversals of write–downs of inventories are recognised in operating expenses in net surplus or deficit, in the period the loss or reversal occurs. During the year, the Group has recognised net reversal of write–downs in inventory of $0.6m (2015: write–down of $0.3m).

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

13. FINANCIAL ASSETS AND LIABILITIES

GROUP GROUP 2016 2015

Non– Non– Current Total Current Total current current

$m $m $m $m $m $m Financial assets Foreign currency forward contracts 0.2 – 0.2 6.5 0.2 6.7 Total financial assets 0.2 – 0.2 6.5 0.2 6.7

Financial liabilities Commodity forward contracts 0.9 0.1 1.0 1.8 0.1 1.9 Loans 5.2 199.3 204.5 28.2 180.0 208.2 Finance leases 1.3 9.0 10.3 1.3 10.3 11.6 Foreign currency forward contracts 2.8 1.8 4.6 0.3 0.1 0.4 Interest rate swaps – 14.6 14.6 – 11.2 11.2 Total financial liabilities 10.2 224.8 235.0 31.6 201.7 233.3

(a) Financial assets The Group’s financial assets designated at fair value are those derivative financial instruments within predetermined policies and limits in order to manage exposure to fluctuations in foreign exchange, commodity and interest rate risks.The relevant accounting policy for these types of financial assets is set out under ‘Derivative financial instruments’ in note 25(b)(i). Financial assets are classified as non–current when the maturity of the hedged item exceeds 12 months.

(b) Financial liabilities Financial liabilities are designated at amortised cost or at fair value through net surplus or deficit unless these are designated as hedged items and therefore hedge accounted for. Financial liabilities are classified as non–current when the maturity exceeds 12 months.

(i) Amortised cost Amortised cost is the amount at which the financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount and the maturity amount.

Interest–bearing liabilities Interest–bearing liabilities are comprised of loans and finance leases.They are initially measured at fair value, plus directly attributable transaction costs. Interest–bearing liabilities are subsequently measured at amortised cost using the effective interest method.

Unsecured loans The notional principal amounts of the outstanding loans for the Group were $174.2m (2015: $174.2m).

Secured loans A loan from Bank of New Zealand is secured against MV Aratere. There are no restrictions on title. The amount outstanding for all secured loans as at the reporting date is $30.3m (2015: $34.0m).

The average term to maturity and weighted average interest rates for external unsecured and secured loans and finance leases are shown in the table below:

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

13. FINANCIAL ASSETS AND LIABILITIES (continued)

GROUP GROUP Unit 2016 2015

Notional principal $ m 214.8 219.9 Average interest rate % 4.60 5.82 Average term to maturity years 2.23 2.67

Committed standby facility The Group has a committed standby facility with Bank of New Zealand for $15.0m as at 30 June 2016 (2015: $15.0m) with an expiry date of 1 July 2017. As at 30 June 2016, the facility is undrawn.

Letter of credit facilities The Group had no letter of credit facilities at 30 June 2016. The Group had one outstanding Import Letter of Credit at 30 June 2016 relating to a rail purchase. The outstanding balance was USD4.5m.

Standby letter of credit The Group had one outstanding standby letter of credit at 30 June 2016 issued as credit support for fuel hedges. The outstanding balance was USD0.5m (2015: USD1.3m).

14. INVESTMENT PROPERTY

GROUP GROUP 2016 2015

$m $m Opening balance 67.6 39.9 Additions 1.2 3.9 Disposals – (0.1) Transfers and reclassifications – 22.2 Fair value (losses)/gains on valuation (0.1) 1.7 Balance at 30 June 68.7 67.6

Investment properties are measured initially at cost, including transaction costs. Investment properties include land and buildings held to earn rental income or capital gains through the future resale of the property.

Subsequent to initial recognition, investment properties are measured at fair value. Gains or losses from changes in the fair values of investment properties are recognised in net surplus or deficit in the year in which they arise. aluationV of leased buildings is undertaken with sufficient regularity to ensure carrying value does not materially differ from fair value. See note 25(b)(ii) for the methodology used in the determination of fair value.

Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.Any gains or losses on the retirement or disposal of an investment property are recognised in net surplus or deficit in the year of retirement or disposal.

Included within investment property is land (excluding the rail corridor) acquired as part of the joint arrangement with Northland Regional Council. The total carrying amount of investment properties relating to this joint arrangement is $2.6m (2015: $2.5m). See note 15 for further information on this joint arrangement.

The total rental income generated from investment properties for the year ended 30 June 2016 was $4.7m (2015: $5.1m). The direct operating expenses (including maintenance) arising from the use of investment properties during the year was $1.2m (2015: $1.8m).

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

15. JOINT ARRANGEMENTS WITH NORTHLAND REGIONAL COUNCIL

In January 2009 the New Zealand Railways Corporation (“NZRC”) entered into an agreement with Northland Regional Council, which was vested from NZRC to KHL on 31 December 2012, to create a joint arrangement in order to advance the proposed Oakleigh to Marsden Point rail link. This arrangement is considered as a joint operation under NZ IFRS 11 Joint Arrangements. As a party to a joint operation, the Group has recognised the related assets and liabilities in relation to its interest in the proposed Oakleigh to Marsden Point rail link.

The Council entered into voluntary negotiations with landowners who owned land along the existing corridor and to date have acquired nine properties with a total acquisition cost of $11.5m (the Group’s share is $5.8m).

At 30 June 2016 the Group has a liability of $5.2m (2015: $5.1m) to the Council for its share of the cost of land purchased by the Council as well as other Council expenditure relating to the joint operation. This is included in Trade and Other liabilities in note 17.

16. INVESTMENT IN JOINT VENTURE

The Group is a party to a joint venture arrangement with the Port of Tauranga and Specialised Container Services (Auckland) Limited. The Group has a 25% interest in MetroBox Limited, a joint venture involved in container repair and storage operating from a facility at Southdown, Auckland.

The Group has joint control over the net assets of the joint venture in accordance with NZ IFRS 11. The Group’s investment in the joint venture is accounted for using the equity method.

Summarised financial statements of the joint venture based on its NZ IFRS financial statements, and reconciliation with the carrying amount of the investment in consolidated financial statements are set out below:

GROUP GROUP 2016 2015

$m $m Net assets 8.0 6.3 Interest 25% 25% Carrying amount of the investment 2.0 1.6 Profit/(loss) for the year 1.7 (0.1) Total comprehensive income 1.7 (0.1) Group’s share of profit for the year 0.4 –

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

17. TRADE AND OTHER LIABILITIES

GROUP GROUP Note 2016 2015

$m $m Trade payables 36.0 25.3 GST payable 17(a) 0.9 1.1 Unearned revenue 11.5 11.3 Accrued interest 1.5 1.7 Payable to joint operator 15 5.2 5.1 Other payables and accruals 39.5 43.1

Total payables 94.6 87.6

Current liabilities 94.6 87.6 Non–current liabilities – – 94.6 87.6

Payables are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. Payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method.

Trade payables are settled on normal commercial terms and the carrying value approximates fair value. No interest is incurred on trade payables unless the amounts fall overdue. Interest is charged at the discretion of the vendor.

(a) Goods and services tax (GST) All items in the financial statements are presented exclusive of GST, except for receivables and payables, which are presented on a GST inclusive basis. Where GST is not recoverable as an input tax it is recognised as part of the related asset or expense.

The net amount of GST payable to Inland Revenue (“IR”) is included as part of trade and other liabilities.

18. EMPLOYEE ENTITLEMENTS

GROUP GROUP 2016 2015

$m $m Current portion Short–term employee benefits 11.5 8.8 Annual leave entitlement accruals 44.6 46.2 Retirement and long service leave liability 4.9 7.9 Total current portion 61.0 62.9 Non–Current portion Retirement and long service leave 38.0 35.0 Total non–current portion 38.0 35.0 Total employee entitlements 99.0 97.9

Provisions are made for benefits accruing to employees in respect of annual leave, retiring leave (including involuntary retirement as medically unfit) and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Employee entitlements are accounted for based on NZ IAS 19 Employee Benefits.

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

18. EMPLOYEE ENTITLEMENTS (continued)

Provisions made in respect of employee benefits expected to be settled within twelve months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of employee benefits which are not expected to be settled within twelve months are measured on an actuarial basis by independent actuaries Melville Jessup Weaver (“MJW”) at the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to the reporting date.

The present value of the retirement and long service leave obligations depend on a number of factors. Two key assumptions used in calculating this liability include the discount rate and the salary inflation factor. The assumptions used by the actuaries in arriving at the retirement and long service leave liabilities were a salary increase rate from 2.04% to 2.5% per annum (2015: from 2.13 to 3.0% per annum) and a term specific risk–free discount rate of between 2.14% and 4.75% per annum (2015: between 3.18% and 5.5% per annum). The discount rate is derived from the yields on Government bonds as at the respective reporting dates, which have terms to maturity that match, as closely as possible, the estimated future cash outflows. The salary inflation factor has been determined after considering historical salary inflation patterns.

Contributions to superannuation plans Certain employees are members of defined contribution schemes and the Group contributes to those schemes.The contributions are recognised as labour and related costs in net surplus or deficit when they are due.

19. PROVISIONS

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount can be reliably estimated.

Leased vessel Reorganisation Other GROUP 2016 ACC AEP Total costs costs provisions

$m $m $m $m $m

Balance at 1 July 2015 3.2 4.7 1.0 0.5 9.4

Provisions made during the year 0.4 1.2 3.4 1.1 6.1 Provisions utilised or released – – (2.7) (0.3) (3.0) during the year Balance at 30 June 2016 3.6 5.9 1.7 1.3 12.5

Current 3.6 – 1.7 1.3 6.6

Non–current – 5.9 – – 5.9

3.6 5.9 1.7 1.3 12.5

ACC Accredited Employer Programme KHL and its subsidiary KiwiRail Limited (“KRL”) belong to the ACC Accredited Employer Programme (“ACC AEP”) whereby each company accepts the management and financial responsibility for employee work–related accidents.

The liability for the ACC AEP is measured annually by MJW, an external independent actuarial valuer, using actuarial techniques at the present value of expected future payments to be made in respect of the employee injuries and claims up to the reporting date. Any changes in assumptions will not have a material impact on the financial statements.

Leased vessel costs The Group has charter agreements in place for the Kaitaki and Kaiarahi ships. Redelivery costs are accrued during the period of the lease.

Reorganisation costs There are restructuring plans across the Group and provisions have been established for expected costs including employee termination benefits. These restructuring activities are expected to be completed during the next financial year.

68 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

20. SALE AND PURCHASE OF LAND

On 31 December 2012 there was a restructure of the Crown’s investment in rail operations. In accordance with the KiwiRail Holdings Vesting Order 2012 which took effect from 31 December 2012, the KiwiRail business was transferred from the NZRC into KHL. All land previously held by KiwiRail together with the Wellington Railway Station and Social Hall buildings was retained by NZRC.

From time to time NZRC may sell parcels of railway land. Under the Group’s lease agreement with NZRC entered into on 31 December 2012, the Group may identify railway land that should be sold and request NZRC to sell it or surrender it from the lease. The sale proceeds are provided to the Group to support its business as the State–Owned Enterprise responsible for the financial performance of the Crown’s investment in rail operations.

Similarly, the Group can identify new parcels of land that are required for rail purposes. The Group will fund the acquisition of the land and can transfer it to NZRC to be included within the lease.

The sale and purchase of land are treated as common control transactions as the Crown is their ultimate parent. The sale of NZRC’s land is regarded as an increase in equity of the Crown to the Group whilst the Group’s acquisition of land for NZRC is treated as a reduction from the Crown’s equity to the Group.

The total net proceeds from land sold during the year was $18.1m. There was no land acquired during the year. The net proceeds were treated as transactions with owners in the Statement of Movements in Equity.

21. LEASES AND COMMITMENTS

(a) Finance lease The Group has a lease agreement with Westpac Banking Corporation. Refer to note 9(a)(v) for details. The lease terms range between four to ten years and there are no terms of renewal, escalation clauses or purchase options contained within the agreement. The approved limit of this facility is $13.1m (2015: $13.0m).

At 30 June 2016 the Group had the following liability under this lease agreement:

GROUP GROUP 2016 2015

Total minimum lease payments due $m $m Not later than one year 1.8 1.9 Later than one year but not later than five years 6.0 6.8 Later than five years 5.0 6.0 Total minimum lease payments 12.8 14.7 Future lease finance charges (2.5) (3.1) Present value of minimum lease payments 10.3 11.6 Represented by: Current 1.3 1.3 Non–current 9.0 10.3 Total finance leases 10.3 11.6

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

21. LEASES AND COMMITMENTS (continued)

(b) Operating lease commitments as lessee NZRC has, along with the Crown, granted a long–term lease to KRL for nominal consideration, under which KRL can enjoy the commercial benefit of the rail corridor land. KRL has primary responsibility for administering the land. Under the lease it can undertake many activities in relation to the land without requiring the consent or involvement of NZRC. It is also able to sub–lease railway land for periods of time within the term of the lease. The total minimum future sublease payments expected to be received under non–cancellable subleases at balance date is $nil.

Expenses incurred that qualify for recognition as an asset under an operating lease is recognised as property, plant and equipment. Capitalised assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an operating expense in net surplus or deficit on a straight–line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability.

The Group leases vessels and plant and equipment in the normal course of its business. Included in these lease commitments is the Group’s charter for the Kaitaki and Kaiarahi ships. The lease for Kaitaki has a non–cancellable term of four years expiring on 30 June 2017 with an option to extend for an additional three years. The lease for Kaiarahi is non–cancellable for five years expiring on 17 July 2020.

Motor vehicle leases generally have a non–cancellable term of three years.

The future aggregate minimum lease payments payable under non–cancellable operating leases are as follows:

GROUP GROUP 2016 2015

$m $m Total minimum lease payments due: Not later than one year 28.4 22.8 Later than one year but not later than five years 64.1 58.4 Later than five years 10.7 14.4 103.2 95.6

(c) Operating lease commitments as lessor The Group has certain non–cancellable property leases. The property lease portfolio is made up of a large number of leases with varying terms.

The future aggregate minimum lease payments to be collected under non–cancellable operating leases are as follows:

GROUP GROUP 2016 2015

$m $m Total minimum lease payments receivable: Not later than one year 26.2 25.5 Later than one year but not later than five years 75.3 72.3 Later than five years 82.5 82.5 184.0 180.3

For the year ended 30 June 2016, $33.9m was recognised as revenue in net surplus or deficit (2015: $31.3m).

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

21. LEASES AND COMMITMENTS (continued)

(d) Capital and other commitments The Group has capital commitments for network upgrades, infrastructure renewal materials, manufacturing of new rolling stock, refurbish- ment costs relating to rolling stock and purchases of plant and equipment.

GROUP GROUP 2016 2015

$m $m Capital expenditure commitments: Not later than one year 44.8 88.6 Later than one year but not later than five years 5.8 13.8 50.6 102.4

22. RECONCILIATION OF NET SURPLUS / (DEFICIT) TO NET CASH FLOWS FROM OPERATING ACTIVITIES

GROUP GROUP 2016 2015

$m $m Net deficit after taxation (194.0) (166.5) Add / (deduct) items classified as investing or financing activities Gain on sale of assets 1.0 1.7 Fair value movement in derivatives 12.8 (0.3) Capital grant receipts (32.9) (44.6) Share in profit of joint venture (0.4) – (213.5) (209.7) Add non–cash items Depreciation and amortisation expense 67.5 68.7 Movements in provisions 6.1 (11.6) Impairment of non–financial assets 216.3 224.7 Write back of receivable from joint venture – (1.7) Movement in fair value of investment properties 0.1 (1.7) 76.5 68.7 Add / (deduct) movements in working capital (Increase)/decrease in trade receivables (4.4) (2.4) Decrease/(increase) in other receivables 4.3 9.0 (Increase)/decrease in inventories (6.6) 2.2 Increase/(decrease) in trade payables 10.7 (11.0) (Decrease)/increase in other payables (2.2) 5.3 Net cash flows from operating activities 78.3 71.8

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

23. RELATED PARTY TRANSACTIONS

The Group enters into transactions with related parties all of which are carried out on normal commercial terms. Transactions that occur within a normal supplier or client / recipient relationship, on terms and conditions no more or less favourable than those which it is reasonable to expect the Parent or its subsidiaries and associates would have adopted if dealing with that entity at arm’s length in the same circumstance, are not disclosed.

Significant transactions with Government–related entities The Group has been provided with equity from the Crown and capital grant funding from Government entities. Equity funding of $209.8m (2015: $198.0m) has been received together with capital grant funding of $13.2m (2015: $31.2m).

The Group receives operating revenue for providing rail freight services to Solid Energy New Zealand and Genesis Energy.

The Group also purchases goods and services from entities controlled, significantly influenced, or jointly controlled by the Crown.

As these transactions are material in nature they have been disclosed in thousands rather than expressed in millions.

GROUP GROUP 2016 2015

REVENUE $000 $000

Solid Energy 25,752 37,477 Genesis Energy 982 1,063 New Zealand Transport Agency 4,341 1,955 31,075 40,495

GROUP GROUP 2016 2015

EXPENSES $000 $000

Meridian Energy 12,952 12,006 Transpower 2,996 2,937 Air New Zealand 1,853 2,469 New Zealand Post 892 439 Kordia 2,086 717 New Zealand Transport Agency 900 802 Maritime New Zealand 300 720 Land Information New Zealand 293 433 Other 328 486 22,600 21,009

Collectively but not individually significant transactions with Government–related entities The Group is required to pay various taxes and levies (such as GST, FBT, PAYE and ACC levies) to the Crown and entities related to the Crown. The payment of these taxes and levies is based on the standard terms and conditions that apply to all tax and levy payers.

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KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

23. RELATED PARTY TRANSACTIONS (continued)

Transactions with key management personnel Key management personnel is defined as Directors, the Chief Executive and all executive level direct reports of the Chief Executive. Key management personnel of the Group may be directors or officers of other companies or organisations with whom the Group may transact. Such transactions are all carried out independently on normal commercial terms.

The compensation of the key management personnel of the Group was as follows:

GROUP GROUP 2016 2015

$000 $000 Key management personnel compensation Short–term employee benefits 4,932 4,778 Termination benefits 223 537 Total key management personnel compensation 5,155 5,315

The following Directors earned fees during the period:

2016 2015

KHL Directors $000 $000 John Spencer 80 80 Paula Rebstock 50 50 Bob Field 32 40 John Leuchars 40 40 Rebecca Thomas 37 40 Kevin Thompson 40 40 Guy Royal 40 40 Mike Pohio 7 – Paul Harper 7 – 333 330

Mike Pohio and Paul Harper were appointed as Directors on 1 May 2016. Bob Field’s term as a Director ended on 30 April 2016.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 73 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

24. SHARE CAPITAL

At 30 June 2016, the Group had issued 613,600,200 ordinary shares with no par value (2015: 403,800,200), each fully paid. The following rights attach to the ordinary shares issued by the Group:

• the right to one vote on a poll at a meeting of the Group on any resolution, including any resolution to appoint or remove a Director or auditor, alter the Group’s constitution, approve a major transaction, approve an amalgamation, and put the Group into liquidation; • the right to an equal share of dividends approved by the Board; and • the right to an equal share in the distribution of the surplus assets of the Group.

GROUP GROUP Reconciliation of number of shares 2016 2015

(m) (m)

Opening balance 403.8 205.8 Shares issued 209.8 198.0 Balance at 30 June 613.6 403.8

25. FAIR VALUE

(a) Classification of Financial Instruments The classification of each category of financial instruments is set out below:

GROUP GROUP 2016 2015

FINANCIAL ASSETS $m $m Loans and receivables Cash and cash equivalents 96.5 50.0 Trade and other receivables (excluding prepayments) 73.0 77.7 169.5 127.7 Fair value through net surplus or deficit (Derivatives non–hedge accounted for) Derivative financial assets 0.2 6.7

FINANCIAL LIABILITIES Amortised cost Trade and other liabilities 82.2 75.2 Interest–bearing liabilities 214.8 219.8 297.0 295.0 Fair value through net surplus or deficit (Derivatives non–hedge accounted for) Derivative financial liabilities 19.6 13.3 Fair value through other comprehensive income (Derivatives hedge accounted for) Derivative financial liabilities 0.6 0.2

The carrying amounts of the financial assets and financial liabilities approximate their fair value.

74 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

25. FAIR VALUE (continued)

(b) Fair Value Hierarchy Fair values are allocated to a fair value hierarchy based on the following:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3 – Inputs for the asset or liability that are not based on observable market data.

The Group does not have any Level 1 and/or Level 3 financial instruments (2015: nil).

For financial assets not quoted in active markets, the Group uses valuation techniques such as present value techniques, comparison to similar instruments for which market observable prices exist and other relevant models used by market participants. i. Derivative financial instruments The fair value of the financial assets and financial liabilities as well as the methods used to estimate the fair value is summarised below:

Level 2

Financial instruments GROUP GROUP (Net Liability)/Net Asset 2016 2015

$m $m Commodity forward contracts (1.0) (1.9) Foreign currency forward contracts (4.4) 6.3 Interest rate swaps (14.6) (11.2) (20.0) (6.8)

Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into (the trade date).Any transaction costs are expensed immediately. The derivative financial instruments are subsequently re–measured to fair value. Derivative financial instruments are designated at fair value through net surplus or deficit and, if they are in a hedge relationship, at fair value through other comprehensive income. The Group uses discounted cash flow techniques. In estimating the fair value of an asset or liability, the Group uses market–observable data to the extent it is available. Where observable inputs are not available, the Group engages banking counterparties to support the establishment of appropriate valuation inputs. A Credit Value Adjustment is made to the underlying interest rate swap curve to adjust for counterparty credit risk.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 75 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

25. FAIR VALUE (continued)

(b) Fair Value Hierarchy (continued) ii. Non–financial assets The fair value of the non–financial assets which are required to be reflected at fair value during the year was:

Level 2

GROUP GROUP Non–financial assets 2016 2015

$m $m Investment property 68.7 67.6 Buildings 49.4 45.6 Assets held for sale – 2.3 118.1 115.5

NZ IFRS 13 requires that the fair value measurement of non–financial assets take into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

Highest and best use of a non–financial asset takes into account the use of the asset that is physically possible, legally permissible and financially feasible. It is determined from the perspective of market participants, even if the Group intends a different use.

The valuation techniques used in determining the fair value of non–financial assets are as follows:

• Investment property Valuation of investment property is carried out with sufficient regularity to ensure the carrying value does not materially differ from fair value. The most recent valuation was carried out by an independent valuer who holds a recognised and relevant professional qualification. Each property is treated as an individual CGU. Investment properties are valued accounting for market derived assumptions. When the fair value is determined, the independent valuer has utilised valuers located nationwide that are familiar with the local property market in which the property is situated. They have factored local inputs into the valuation such as rentals, capitalisation rates and land values. The market valuation methodology used for investment properties was the income approach. The capitalisation rates used in the valuation range from 8% to 11%. • Buildings Buildings are properties held to carry–out the Group’s entity–specific operations. They are revalued with sufficient regularity to ensure the carrying value does not materially differ from fair value. The most recent valuation of buildings that form part of the rail CGU was carried out by an independent valuer who has recognised and relevant qualifications. In carrying out the valuation, the valuers take into account the likely sale price of the property but also assumed that the highest and best use is the properties’ current use. Valuations are undertaken in accordance with the standards issued by the New Zealand Property Institute, NZ IAS 16 Property, Plant and Equipment and NZ IFRS 13 with the following bases of valuation adopted: • Specialised buildings which are those assets identified as having no readily available market and exist strictly to carry out KiwiRail’s unique operations are valued using optimised depreciated replacement cost. • Non–specialised buildings which could be sold with relative ease are valued at market value. • Assets held for sale There are no assets held for sale at balance date. A number of assets held by the Group were identified to be sold as at 30 June 2015. An asset held for sale is required to be measured at the lower of the carrying value and the fair value less cost to sell. We adopted the ‘market approach’ to determine the asset’s fair value by using market multiples derived from a set of comparables. For assets which are actively marketed, the source of fair value was based on the expressions of interest received carried out on an open market basis.

76 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

25. FAIR VALUE (continued)

(b) Fair Value Hierarchy (continued) Sensitivity analysis The following represents the financial impact of changes in fair value of non–financial assets:

Increase in fair value by 5% Decrease in fair value by 5%

Non–financial assets 2016 2015 2016 2015

Buildings $0.4m $0.2m $1.0 $0.8m Investment properties $3.3m $3.3m $3.3m $3.3m

26. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES

The Group’s principal financial instruments comprise cash and cash equivalents, receivables, interest–bearing liabilities, trade and other liabilities and derivatives.

The Group manages its exposure to key financial risks, including market risk, credit risk and liquidity risk in accordance with the Group’s financial risk management policies. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting future financial security.

(a) Market Risk Market risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market price. Market risk comprises three types of risk; currency risk, interest rate risk and other price risk.

(i) Foreign Exchange Risk or Currency Risk

Foreign exchange risk is the risk of cash flow volatility arising from the movement in foreign exchange rates to which the Group may be exposed. The Group is exposed to foreign exchange risk from normal operating activities and capital purchases.

The Group’s Treasury Policy requires it to manage foreign currency risks arising from future transactions and liabilities by using Board approved foreign exchange hedging instruments.

The New Zealand Dollar notional principal amounts of outstanding forward foreign exchange contracts were $62.3m (2015: $98.2m).

The Group has hedged 100% (2015: 97.01%) of committed foreign currency capital purchases.

Cash flows in respect of foreign currency cash flow hedges are expected to occur:

GROUP GROUP 2016 2015

Currency hedged: EURO $m $m

Not later than 1 year 5.9 6.2 Later than 1 year not later than 2 years – 6.2 5.9 12.4

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 77 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

26. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (continued)

Foreign currency sensitivity on financial instruments The following table demonstrates the sensitivity of the Group’s equity and profit to a 10% strengthening or weakening in the value of the New Zealand Dollar. This analysis does not include future forecast hedged operating or capital transactions.

GROUP GROUP 2016 2015

In NZ $m Equity Profit Equity Profit

Impact of a 10% strengthening of the NZD (5.1) (4.6) (8.7) (7.6) Impact of a 10% weakening of the NZD 6.3 5.6 10.6 9.3

ii. Interest Rate Risk Interest rate risk is the risk that cost of funds increase due to adverse movements in the interest rates that KiwiRail pays on its borrowings.

The Group borrows a mixture of fixed and floating rate debt in New Zealand Dollars.The Group hedges its re–pricing profile using interest rate swaps in accordance with its Treasury Policy in order to minimise and provide certainty over funding costs.

The notional principal amounts of the outstanding interest rate swaps for the Group were $146.0m (2015: $146.0m), with average term to maturity of 3.56 years (2015: 4.83 years) and weighted average fixed interest rate of 5.97% (2015: 5.95%).As at 30 June 2016, after taking into account the effect of the interest rate swaps, approximately 68.0% of the Group’s borrowings are at a fixed rate of interest (2015: 65.3%).

Interest sensitivity analysis A change in the interest rates would also have an impact on interest payments and receipts on the Group’s floating rate debt and investment instruments (including the floating rate leg of any interest rate derivatives).The sensitivity to a 100 basis point (bp) movement in interest rates (based on financial assets and liabilities held at the reporting date) is as follows:

GROUP GROUP 2016 2015

In NZ $m Profit Profit

Impact of a 100 bp interest rate increase 1.7 2.9 Impact of a 100 bp interest rate decrease (1.8) (3.1) iii. Price Risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market prices.

Fuel Price risk The Group seeks to recover increased costs caused by increased fuel prices from its customers in the form of a fuel surcharge or fuel adjustment factor. Since the Group purchases its fuel at floating market rates, the Group is exposed to fuel price risk to the extent that it is unable to fully recover fuel price increases from its customers in the form of fuel surcharges. Accordingly, the Group’s Treasury Policy allows Board approved hedging instruments to be entered into to manage this exposure.

The Group is party to a number of commodity forward contracts for heavy and light fuel oil. The total notional principal amount of outstanding commodity forward contracts is $6.1m (2015: $10.6m).

78 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

26. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (continued)

(b) Credit Risk Credit risk is the potential loss from a transaction in the event of default by a counterparty during the term of the transaction or on settlement of the transaction. Financial instruments which potentially subject the Group to credit risk consist primarily of cash and cash equivalents and trade and other receivables.

Whilst the Group may be subjected to losses up to the contract value of the instruments in the event of default by its counterparties, it does not expect such losses to occur. On–going credit evaluation is performed on the financial condition of accounts receivable and customers’ compliance with credit terms.

The Group’s Treasury Policy does not require collateral support for financial instruments subject to credit risk, although personal guarantees may be obtained in support of the financial performance of certain customers.

Concentration of credit risk The Group does not have any significant credit risk exposure to a single counterparty or any group of counterparties having similar characteristics due to the large number of customers included in the Group’s customer base. The credit risk on cash and cash equivalents and foreign exchange dealings is limited as the Group spreads its business amongst a number of Standard & Poors AA rated counterparties.

Credit quality of assets not impaired or not yet due The Group does not rate its individual debtors as it has a large number of customers. The incident of default on financial assets not impaired or not yet due is minimal. The Group has no other significant exposure to credit risk from financial assets not impaired or not yet due, nor has there been any renegotiation of terms on any of these assets.

Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure.

(c) Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet financial commitments as they fall due.The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and financial liabilities.The Group accesses funds via Crown appropriations for specified capital projects.

Exposure to liquidity risk The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance date to the contractual maturity date. Future interest payments on floating rate debt are based on the floating rate of the instrument at the balance date. The amounts disclosed are the contractual undiscounted cash flows.

Carrying Contractual Less than 1 More than 5 GROUP 2016 1 – 2 years 2 – 5 years amount cash flows year years

$m $m $m $m $m $m Financial Liabilities Trade and other payables 82.2 82.2 82.2 – – – Net settled derivative liabilities 20.0 20.0 3.6 0.6 12.5 3.3 Finance leases 10.3 12.7 1.8 1.8 4.1 5.0 Borrowings 204.5 222.2 14.9 173.5 33.8 – Total 317.0 337.1 102.5 175.9 50.4 8.3

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 79 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

26. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (continued)

GROUP 2015 Carrying Contractual Less than 1 More than 5 1 – 2 years 2 – 5 years amount cash flows year years

$m $m $m $m $m $m Financial Liabilities Trade and other payables 75.2 75.2 75.2 – – – Net settled derivative liabilities 13.5 13.5 2.0 0.3 5.0 6.2 Finance leases 11.6 14.7 1.9 1.8 5.0 6.0 Borrowings 208.2 235.3 40.1 12.2 183.0 – Total 308.5 338.7 119.2 14.3 193.0 12.2

(d) Derivative Financial Instruments and Hedging Activities The Group uses derivative financial instruments within predetermined policies and limits in order to manage its exposure to fluctuations in foreign exchange, commodity and interest rate risks. The Group does not engage in speculative transactions or hold derivative financial instruments for trading purposes.

The risk management objectives and strategy for undertaking various hedge transactions is covered by the Group Treasury Policy. The Group documents, at the inception of the transaction, the hedging relationship between hedging financial instruments and the hedged items. The Group also documents its assessment, both at hedge inception and on an on–going basis, of whether the derivatives used in the hedging transaction are highly effective in offsetting changes in fair values or cash flows of hedged items.

Cash flow hedges Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognised in other comprehensive income and the cash flow hedge reserve within other comprehensive income to the extent that the hedges are deemed effective. To the extent that the hedges are ineffective for accounting, changes in fair value are recognised in net surplus or deficit in foreign exchange and commodity net gains and losses.

In any of the following circumstances, the Group shall discontinue hedge accounting: • If a derivative financial instrument expires or is sold, terminated or exercised • It no longer meets the criteria for hedge accounting • The forecast transaction is no longer expected to occur • The designation of the hedge relationship is revoked or changed In cases where hedge accounting is discontinued, the cumulative, unrealised gain or loss recognised in the cash flow hedge reserve in other comprehensive income with respect to the derivative instrument is recognised immediately in net surplus or deficit.

Where the hedge relationship continues throughout its designated term, the amount in the cash flow hedge reserve is transferred to the carrying value of the asset when it is recognised.

(e) Capital Risk Management The Group manages its capital structure to ensure it is able to continue as a going concern whilst maximising its investment into rail infrastructure and rolling stock assets. The State–Owned Enterprises Act 1986 requires the Board to manage the Group as a profitable and efficient organisation that is comparable to businesses that are not owned by the Crown.

The capital structure of the Group consists of borrowings, cash and cash equivalents and equity. Equity comprises a capital contribution from the Crown, retained earnings and reserves.

The Board reviews the capital structure of the Group as part of the Group’s planning cycle and regular on–going reviews. As part of this review, the Board considers the level of capital invested in the business and the amounts retained to ensure it effectively achieves its objectives and purpose.

80 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Financial statements

KIWIRAIL HOLDINGS LTD Notes to the Financial Statements For the financial year ended 30 June 2016

27. CONTINGENT LIABILITIES

Marsden Point rail corridor designation The Group has confirmed its designation of the rail corridor from the NorthAuckland Line to Marsden Point. The Northland Regional Council will purchase any land that may be required. The Group has an agreement with the Northland Regional Council that it will have a half share in the acquisition and holding costs of land purchases with the Council.

28. EVENTS SUBSEQUENT TO BALANCE DATE

There were no material events subsequent to balance date. Effective 2 July 2016, the Group ceased to be the operator for Tranz Metro passenger services in Wellington. The operating surplus attributable to Tranz Metro operations for year ended 30 June 2016 was $3.5m.

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 81 Statutory review: Independent Auditor’s report

Independent Auditor’s Report

To the readers of KiwiRail Holdings Limited group’s financial statements for the year ended 30 June 2016

The Auditor–General is the auditor of KiwiRail Holdings Limited and its subsidiaries and other controlled entities (collectively referred to as “the Group”). The Auditor–General has appointed me, Stephen Lucy, using the staff and resources of Audit New Zealand, to carry out the audit of the financial statements of the Group on her behalf.

Opinion We have audited the financial statements of the Group on pages 48 to 81, that comprise the statement of financial position as at 30 June 2016, the statement of comprehensive income, statement of movements in equity and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information.

In our opinion the financial statements of the Group: • present fairly, in all material respects:

• its financial position as at 30 June 2016; and

• its financial performance and cash flows for the year then ended; and • comply with generally accepted accounting practice in New Zealand in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting Standards.

Dependence on continuing support from shareholder Without modifying our opinion, we draw your attention to the disclosure made on page 53 that the Board of Directors’ assessment of the group’s ability to continue as a going concern is dependent on continuing support from the shareholder. We consider the disclosures to be adequate.

Our audit was completed on 26 August 2016. This is the date at which our opinion is expressed.

The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and explain our independence.

Basis of opinion We carried out our audit in accordance with the Auditor–General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence readers’ overall understanding of the financial statements. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.

An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the Group’s financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

An audit also involves evaluating:

• the appropriateness of accounting policies used and whether they have been consistently applied;

• the reasonableness of the significant accounting estimates and judgements made by the Board of Directors;

• the adequacy of the disclosures in the financial statements; and

• the overall presentation of the financial statements.

82 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Independent Auditor’s report

We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements. Also we did not evaluate the security and controls over the electronic publication of the financial statements.

We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.

Responsibilities of the Board of Directors The Board of Directors is responsible for the preparation and fair presentation of financial statements for the Group that comply with generally accepted accounting practice in New Zealand.

The Board of Directors’ responsibilities arise from the State Owned Enterprises Act 1986.

The Board of Directors is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for the publication of the financial statements, whether in printed or electronic form.

Responsibilities of the Auditor We are responsible for expressing an independent opinion on the financial statements and reporting that opinion to you based on our audit. Our responsibility arises from the Public Audit Act 2001.

Independence When carrying out the audit, we followed the independence requirements of the Auditor–General, which incorporate the independence requirements of the External Reporting Board.

In addition to the audit we have carried out a special purpose audit relating to the Funding Agreement for Suburban Rail Services between one of the subsidiaries of the group, KiwiRail Limited, and the Greater Wellington Regional Council. The special purpose audit is compatible with those independence requirements. Other than the audit and the special purpose audit, we have no relationship with or interests in the Group.

S B Lucy

Audit New Zealand On behalf of the Auditor–General Wellington, New Zealand

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 83 Statutory review: Key Performance Indicators

KIWIRAIL HOLDINGS LTD Key Performance Indicators Statement of Corporate Intent comparisons*

2016 2016 Actual Target

Sustaining Zero Harm Environment LTIFR 5.8 6.2 TRIFR 14.6 11.7 GHG emissions per NTK (gms) 29.6 30.3

Engaging our customers and stakeholders Rail Freight Customers – Net Promoter Score (18) (1) Commercial Vehicle Customers – Net Promoter Score (17) 5 Interislander – Net Promoter Score 53 35 Scenic Journeys – Net Promoter Score 63 64 Tranz Metro – Customer satisfaction (%) 93 93

Delivering operational performance Ontime Performance (%) – All Freight Trains 83 94 – Freight Premium Trains 69 82 – Tranz Metro 96 94 – % Interislander services to advertised sailings 99 99 Fuel litres per 1000 GTK 5.5 5.5 Operating costs as a percentage of revenue 88 88 Network Renewals – New Sleepers Laid (000) 73 82 – New Rail Laid (km) 15 13 – Lines De–stressed (km) 93 153

Empowering our people Employee Engagement Net Promoter Score (21) (15)

Meeting our financial targets Revenue ($m) 694 703 Contribution Margin (%) 25 26 Underlying Operating Surplus ($m) 86 85 Underlying Operating Surplus as % of Revenue 12 12 Capital Expenditure – net of grants ($m) 254 282

84 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Key Performance Indicators

KIWIRAIL HOLDINGS LTD Key Performance Indicators Statement of Corporate Intent comparisons*

2016 2016 Actual Target

Shareholder Return Measures Total Shareholder Return N/A N/A Dividend Yield 0 0 Dividend Payout 0 0 Return on Average Equity (%) (36) (43)

Profitability/Efficiency Measures Return on Average Capital Employed (%) (26) (30) Operating Margin (%) 12 12

Leverage/Solvency Measures Shareholder’s Funds to Total Assets (%) 56 56 Gearing Ratio – net (%) 21 28 Interest Cover 7.0 6.9 Solvency (current assets/current liabilities) 1.43 1.36

*Refer to Statement of Corporate Intent 2016–2018 for definitions of performance measures

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 85 Statutory review: Vote Transport

Vote Transport

Vote Transport: Non-Departmental Capital & Other Expenditure Activities undertaken by KiwiRail that are funded through Vote Transport Non-Departmental Capital & Other Expenditure are detailed below.

Rail – Railway Safety (M72) This appropriation is intended to achieve improvements in community safety around railway lines and stations.

2016 2016 Actual Target Amount of Appropriation ($000) 500 500 Performance Measure: A safer railway system Achieved Achieved

Rail – Public Policy Projects (M72) This appropriation is intended to achieve public policy rail initiatives that do not have a financial benefit but have positive fectsef on the community. 2016 2016 Actual Target Amount of Appropriation ($000) 3,270 3,270

Performance Measure: The Public Policy Projects are carried out in line Achieved Achieved with the programme

Rail – KiwiRail Equity Injection (M72) This appropriation is intended to achieve equity injections to KiwiRail Holdings Limited resulting from property transactions by New Zealand Railways Corporation. 2016 2016 Actual Target Amount of Appropriation ($000) 18,108 23,010

Rail - KiwiRail Holdings Limited (M72) This appropriation is intended to achieve capital investment in the New Zealand rail system. 2016 2016 Actual Target Amount of Appropriation ($000) 209,800 209,800 Performance Measure: Capital is invested in the New Zealand rail system 100% 100% as approved by shareholding Ministers

Rail – Wellington Metro Rail Network Upgrade (M72) This appropriation is intended to achieve significant improvements to the ellingtonW metro network, to improve the reliability of commuter services. 2016 2016 Actual Target Amount of Appropriation ($000) 12,768 16,513 Performance Measure: 77% completed with remainder carried 100% Work is carried out per the agreed programme forward to 2016/17

86 | KIWIRAIL ANNUAL INTEGRATED REPORT 2016 Statutory review: Employee remuneration

Employee remuneration

There were 895 KiwiRail employees (or former employees) who received remuneration and benefits in excess of $100,000 (not including Directors) in their capacity as employees during the year ended 30 June 2016, as set out below

1,020–1,030 1 240–250 4

550–560 2 230–240 5

480–490 1 220–230 12

450–460 1 210–220 6

400–410 1 200–210 8

370–380 2 190–200 18

360–370 1 180–190 15

350–360 1 170–180 16

340–350 1 160–170 36

330–340 1 150–160 39

310–320 3 140–150 45

300–310 2 130–140 89

290–300 2 120–130 96

280–290 2 110–120 180

260–270 1 100–110 301

250–260 3

Total employees earning in excess of $100,000 895 (2015: 845)

Employees who are included but who are no longer at KiwiRail as at 30 June 2016 170 (2015: 80)

Net total employees earning in excess of $100,000 and employed at KiwiRail as at 30 June 2016 725 (2015: 765)

This includes fixed remuneration, employee KiwiSaver contributions, short–term performance payments, settlement payments and redundancy payments for all permanent employees

KIWIRAIL ANNUAL INTEGRATED REPORT 2016 | 87 Statutory review: Directory

Directory

Bankers Bank of New Zealand North End Branch, 100 Lambton Quay, Wellington P.O. Box 1596, Wellington 6140

Auditors Stephen Lucy, Audit New Zealand On behalf of the Auditor–General Level 2, 100 Molesworth Street, Wellington Private Bag 99, Wellington 6140

Registered office Level 3, 8–14 Stanley Street, Auckland 1010

Further information For assistance, publications or information concerning KiwiRail please visit our website at www.kiwirail.co.nz or contact: KiwiRail Communications PO Box 593, Wellington, 6140 Telephone: 0800 801 070 | Email: [email protected]

Photos : Lindsay Keats, Brendon O’Hagan, Mark Coote, Michael Kilgour Front cover photos clockwise from top left Christine Nuthall, Connor Harding, Matt Croton, Halina Adamiak and Brian Dunleavy